Restructuring Interviews: How the Questions Differ From a Normal IB Round

A normal IB round asks what a company is worth. A restructuring round asks who gets that value, in what order, and what happens to everyone the money doesn't reach.

Restructuring groups still ask the standard rotation. You'll get walked through a DCF, asked how depreciation flows through the statements, maybe handed a quick LBO. What changes is where the conversation goes after that. In M&A coverage, the valuation is usually the end of the question. In restructuring, it's the starting point, because the real work is splitting a value that isn't big enough to pay everyone back.

That shift moves almost every question toward the right side of the balance sheet. Debt terms, priority, liquidity, and the bankruptcy process itself carry a lot more weight than they would anywhere else on the floor.

What actually changes in the room

• More time on the capital structure. Expect to be asked what sits above what, which debt is secured and by which assets, and when each piece matures.
• Liquidity over profitability. A company with positive EBITDA can still be weeks from running out of cash, and interviewers want to see that you know the difference.
• Process knowledge. You don't need to be a lawyer, but you should know what Chapter 11 is for, what a DIP loan is, and roughly how a plan gets approved.
• Recovery math. Instead of an implied share price, the output is often cents on the dollar for each class of creditor.
• A sharper "why restructuring" question, because a lot of candidates apply to RX groups as a backup and interviewers know it.

The capital structure questions

Start by knowing the standard order of priority cold. From the top, it usually runs like this:

1. DIP financing and administrative claims (the costs of running the bankruptcy itself).
2. Secured debt, in order of lien priority: first lien, then second lien.
3. Unsecured debt, like senior notes. Trade claims from suppliers often sit at this same level.
4. Subordinated debt, which has agreed by contract to rank behind the senior unsecured.
5. Preferred equity.
6. Common equity.

This is the absolute priority rule. In its strict form, no junior class gets anything until every class above it is paid in full. In practice, plans sometimes give a small amount to a junior class so the deal gets done faster, but the strict version is the right default answer in an interview.

A common follow-up: why does secured debt get paid before unsecured? Because a secured lender has a claim on specific collateral. If the collateral is worth less than the loan, the shortfall becomes an unsecured claim and ranks alongside the other unsecured debt. That split comes up a lot, so be ready to say it plainly.

A recovery waterfall you can run out loud

This is the restructuring version of the paper LBO. Keep the numbers round and say each step as you go. A simplified example, ignoring admin claims and trade:

• The reorganized company is valued at $500 million.
• There's a $50 million DIP loan, a $300 million first lien term loan, and $250 million of senior unsecured notes. The old equity sits below all of it.
• The DIP is paid first, in full. That leaves $450 million.
• The first lien gets its $300 million, also in full. That leaves $150 million.
• The unsecured notes have a $250 million claim but only $150 million left to share. They recover 60 cents on the dollar.
• Nothing reaches the old equity. It recovers zero.

The notes are the fulcrum security here, meaning the first class in the waterfall that isn't paid in full. That matters because the fulcrum class usually ends up owning most of the new equity in the reorganized company. Expect the interviewer to ask which class is the fulcrum, and then to change the valuation and ask again. If the company were worth $300 million instead, the DIP still gets $50 million, the first lien gets the remaining $250 million (about 83 cents), the first lien becomes the fulcrum, and the notes get nothing.

Notice how much the valuation is now doing. A higher number pushes value down to the junior classes, a lower one keeps it up top. That's why valuation fights in bankruptcy get so heated, and why an interviewer might ask which side would argue for a higher number. The junior creditors would. The senior ones, who are happy to own the company at a low price, would push the other way.

Chapter 11 basics worth knowing

You won't be tested on case law. You will be expected to know the vocabulary well enough to hold a conversation.

• Chapter 11 is a reorganization. The company keeps operating while it restructures its debts. Chapter 7 is a liquidation, where a trustee sells off the assets.
• The automatic stay kicks in at filing. Creditors have to stop collection efforts, which gives the company breathing room.
• A DIP (debtor-in-possession) loan funds the company during the case. It gets priority over existing claims, which is why lenders are willing to make it.
• A 363 sale lets the company sell assets during the case, generally free and clear of existing liens. A stalking horse bidder sets the floor price for the auction.
• A credit bid is when a secured lender bids its debt claim instead of cash to buy the collateral.
• Interest on unsecured claims generally stops accruing after the filing.
• The plan of reorganization lays out what each class receives. Creditors vote by class, and a plan can sometimes be confirmed over a dissenting class (a cramdown) if it meets certain fairness tests.

One test worth knowing by name is the best interests test. Each impaired creditor who votes against the plan has to receive at least what they would get in a Chapter 7 liquidation. That's why a restructuring analysis often includes a liquidation analysis alongside the going concern valuation.

Out-of-court options

Not every restructuring ends in a filing, and interviewers like to check that you know that. Bankruptcy is slow and expensive, so companies usually try other routes first.

• Amend and extend, where lenders agree to push out maturities, often in exchange for a higher rate or a fee.
• Exchange offers, where bondholders swap their bonds for new securities, usually with a lower face value but a better position in the structure.
• Asset sales to raise cash and pay down debt.
• New money from existing lenders or a rescue investor, often on expensive terms.
• Liability management transactions, where a borrower uses flexibility in its credit agreement to raise new debt that ranks ahead of some existing lenders. These have become a big part of the job and a common thing to ask about.

The usual drawback of an out-of-court deal is the holdout problem. Creditors who don't participate can keep their original claim and benefit from everyone else taking a haircut. Chapter 11 solves that by binding a whole class once enough of it votes yes.

Liquidity questions

“Why would a profitable company go bankrupt?” is one of the most common restructuring questions, and the answer is almost always cash and timing. A large debt maturity it can't refinance, interest payments that eat its operating cash flow, a covenant breach that lets lenders demand repayment, or a sudden drop in revenue that drains the cash balance before costs can be cut.

Be ready to talk about a 13-week cash flow forecast. It's a weekly projection of cash in and cash out over the next quarter, and it's often one of the first things an RX team builds on a new engagement. It tells you when the company runs out of money and how much it needs to get through the process.

You might also get asked about covenants. Maintenance covenants are tested regularly, usually every quarter, against something like a leverage ratio. Incurrence covenants are only tested when the company takes a specific action, such as issuing more debt. Breaking a maintenance covenant can trigger a default even if every payment has been made on time.

The accounting twist

Restructuring interviewers like to take a normal three-statement question and run it through a distressed situation. The classic one is a debt repurchase below face value.

Walk me through repurchasing $100 of debt for $70

Assume a 20% tax rate. On the income statement, the company records a $30 gain on the extinguishment of debt. After tax, net income goes up by $24.

On the cash flow statement, net income is up $24, but the $30 gain isn't cash, so you subtract it in cash from operations. That leaves operating cash flow down $6, which is the tax paid on the gain. In financing, the $70 repurchase is an outflow. Cash is down $76 in total.

On the balance sheet, cash is down $76 on the asset side. Debt is down $100 and retained earnings are up $24, so liabilities and equity together are down $76. It balances.

If they push further, the tax side is the next layer. Forgiven debt is generally treated as taxable income (cancellation of debt income), though there are exceptions in bankruptcy that usually come at the cost of reducing tax attributes like NOLs. You don't need the details, just the awareness that the gain can have a tax bill attached.

The “why restructuring” answer

Interviewers in RX groups hear a lot of answers that boil down to “I applied everywhere and you called back.” Give them something specific. Good answers tend to mention that the work sits on both sides of the balance sheet, that it stays busy when M&A slows down, that you get exposure to legal and negotiation work earlier than in most groups, or that the deals are complex in a way that keeps you learning.

Know whether the group mostly advises debtors (the company) or creditors (the lenders and bondholders), since some banks lean strongly one way. It shapes the work, and mixing it up in the interview is an easy thing to avoid with ten minutes of reading.

Common questions

The standard technical rotation still matters just as much in an RX round. If your LBO mechanics are shaky, start with the most common LBO interview mistakes, and for the cost of debt versus equity in a healthy company, see what an interviewer wants to hear you weigh.