Interview prep · Restructuring
Restructuring interview questions
Restructuring interviews layer a distressed-specific curriculum on top of the standard technical set. The underlying test is whether you can reason about a capital structure where there is not enough value to go around — a mental model most candidates have never needed before.
Entry-level questions cover the landscape: what restructuring bankers do, debtor versus creditor mandates, and the basic distinction between Chapter 11 reorganization and Chapter 7 liquidation. The core escalation runs through the claims waterfall — the priority of claims, what absolute priority means, and how to identify the fulcrum security, the class where value runs out and which typically converts into equity of the reorganized company. Superday questions test applied judgment: how valuation practice changes when a company is distressed, what DIP financing is and why it sits so senior, and the trade-offs between an out-of-court exchange and a court process.
The skill being hired for is locating where value breaks in a capital structure and reasoning about who holds leverage as a result. Candidates who frame every answer around that question sound like they belong in the room.
Restructuring: what candidates ask
Do I need legal knowledge for restructuring interviews?+
You need working fluency with bankruptcy concepts — Chapter 11 versus Chapter 7, the priority of claims, DIP financing, the idea of a plan of reorganization — but not law-school depth. Interviewers test whether you can use these concepts to reason about value and leverage among creditors, not whether you can cite the bankruptcy code.
Are restructuring interviews harder than regular M&A interviews?+
They are usually broader rather than intrinsically harder: firms with significant restructuring practices commonly test the full standard technical set plus the distressed layer. The RX-specific material is unfamiliar to most candidates, which makes it feel harder — and also makes solid preparation on the waterfall and fulcrum concepts an easy way to stand out.
Should I prep restructuring if I'm not applying to an RX group?+
A basic layer is worth having if you are interviewing anywhere with a meaningful restructuring franchise, since interviewers sometimes come from that practice, and distressed questions surface more broadly when credit conditions tighten. For generalist processes elsewhere, the fundamentals of the claims waterfall are usually sufficient insurance.
Every Restructuring question in the bank
All 72 published questions from Restructuring & Distressed — each links to its own page. Free ones show the full model answer.
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- What is the core difference between Chapter 11 and Chapter 7 bankruptcy?
- Why is restructuring considered a counter-cyclical business?
- State the absolute priority rule (APR) in one sentence.
- Define the fulcrum security.
- Give the formula for a class's recovery percentage and apply it: a class has a $250M claim and receives $90M of cash plus new equity worth $35M.
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- Walk me through what happens when a company files for Chapter 11.
- What is the difference between debtor advisory and creditor advisory in restructuring?
- What is the absolute priority rule (APR)?
- How does a recovery analysis work?
- What is the difference between going-concern value and liquidation value?
- What is a 363 asset sale and why might a debtor use one?
- What is an exchange offer in a restructuring context?
- What is an amend-and-extend (A&E), and when is it used?
- What is the difference between a covenant breach (technical default) and a payment default?
- How does a company typically become distressed?
- What is a debt-for-equity swap?
- What is the automatic stay and what does it do?
- What makes a company a good restructuring candidate?
- What is a restructuring support agreement (RSA) and why is it used?
- Lay out the standard claims waterfall from top to bottom.
- Walk me through how you find the fulcrum security step by step.
- Worked waterfall: EV = $700. Capital structure: $300 first-lien term loan, $300 senior unsecured notes, $200 subordinated notes. Which is the fulcrum, and what does each recover?
- Same structure ($300 first lien, $300 senior notes, $200 subs) but EV is now only $450. Where does the fulcrum move?
- Why does the fulcrum security move up the capital structure when enterprise value falls?
- Why do distressed investors fight to identify and own the fulcrum security?
- Where does DIP financing sit in the waterfall and why does that matter for recoveries below it?
- If first-lien debt is fully covered and second-lien is partially covered, which is the fulcrum?
- Why is the valuation fight the center of nearly every restructuring negotiation?
- How does the fulcrum analysis differ in a going-concern reorganization versus a liquidation?
- A senior secured lender is the fulcrum security. What does that tell you about the company's value, and what's the likely outcome?
- Quick recovery math: $1,000 of total claims, EV = $600. Stack: $400 first lien, $400 senior unsecured, $200 subs. Give recoveries and identify the fulcrum.
- How do you build a liquidation analysis? Walk through the mechanics.
- If total distributable value is $700M, and the capital structure is $400M secured debt, $300M senior unsecured, $200M sub debt, and $100M equity—what are the recoveries and which is the fulcrum security?
- Same $400/$300/$200/$100 structure, but distributable value is now $550M. Compute each class's recovery rate.
- Why is goodwill typically assigned ~0% recovery in a liquidation analysis, while it can carry real value in a going-concern scenario?
- What is a 'recovery rate' on a bond, and roughly how does it relate to a credit default swap settlement?
- Rank typical recovery rates by debt seniority/security from highest to lowest, and explain the driver.
- Why is cash usually assigned ~100% recovery but receivables and inventory steep haircuts in liquidation?
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- What is DIP financing and why is it so attractive to lenders?
- Describe the typical claims waterfall / order of priority in a bankruptcy.
- What is the fulcrum security and why does it matter?
- How does valuation in restructuring differ from valuation in M&A?
- What is the difference between a pre-pack, a pre-arranged, and a free-fall bankruptcy?
- What is an out-of-court restructuring and why is it often preferred over Chapter 11?
- What is the difference between a maintenance covenant and an incurrence covenant?
- What is a cramdown?
- What is a plan of reorganization and how does it get confirmed?
- Which credit metrics signal that a company is heading toward distress?
- An investor thinks the market is too pessimistic on a company's value. Which part of the capital structure should they buy, and why?
- How do administrative and priority claims affect the value available to secured and unsecured creditors?
- How does a secured creditor's recovery work when its collateral is worth less than its claim?
- What is the difference between APR being satisfied and a class simply voting to accept a plan?
- What is a 'gift' or gifting in the context of the absolute priority rule?
- How does intercreditor or contractual subordination change the waterfall versus structural seniority?
- Two bonds are both 'senior unsecured' but one is issued at the operating subsidiary and one at the holding company. Which recovers more and why?
- What does the 'fair and equitable' requirement mean for a dissenting secured class in a cramdown?
- What does 'fair and equitable' mean for a dissenting unsecured class, and how does it relate to APR?
- What is the 'best interests of creditors' test and how does it interact with the waterfall?
- Within a single secured tranche shared by first and second lien, how does the intercreditor agreement drive the waterfall?
- How does paid-in-kind (PIK) or accruing interest on junior debt affect where the fulcrum lands over time?
- How do you decide whether the fulcrum class should receive cash, new debt, or equity in the plan?
- What is a deficiency claim and how does it move value around the waterfall?
- Why can an out-of-the-money junior class still extract a recovery despite the absolute priority rule?
- How does the size of a priming DIP or a roll-up affect junior creditor recoveries and the fulcrum?
- What is the role of liquidation analysis versus going-concern valuation when negotiating a plan of reorganization?
- Why might a distressed-debt investor pay MORE than implied recovery value for the fulcrum security?
- What are administrative and priority claims, and why do they matter enormously in a low-value liquidation?
- When valuing a distressed company's going-concern equity for recovery purposes, why might you NOT use the current depressed trading multiple?
- In a distressed DCF, how should the discount rate and projections differ from a healthy-company DCF?
- Why can two creditors in the same legal class still argue over recovery, and what is the 'plan value' fight?
- How do intercompany claims and structural subordination affect recovery analysis in a multi-entity capital structure?
- What is a credit bid, and how does it interact with secured-creditor recoveries in an asset sale?
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