Restructuring interview questions
Restructuring (RX) bankers advise companies, or their creditors, when a company has more debt than it can handle. Interviews test how bankruptcy works, who gets paid in what order, and how to value a distressed business.
Learn the capital stack (secured debt, then unsecured, then equity), how to run a recovery waterfall and why the fulcrum security, the class where value runs out, usually ends up owning the company.
Restructuring questions
Basic
What's the difference between Chapter 7 and Chapter 11 bankruptcy?
A strong answer covers
- Chapter 7: liquidation
- Chapter 11: reorganization while operating
- Chapter 11 features: automatic stay, DIP financing, plan of reorganization
- Creditors paid by priority
Basic
What signs would tell you a company is heading toward distress?
A strong answer covers
- Rising debt/EBITDA and falling margins
- Shrinking cash and liquidity
- Large debt maturities coming due
- Bonds trading well below face value
Intermediate
Walk me through a typical capital structure and who gets paid first.
A strong answer covers
- Secured debt (first lien, then second lien)
- Unsecured bonds, then subordinated debt
- Preferred stock, then common equity
- Absolute priority rule
Intermediate
What is a 363 sale, and why might a company use one in Chapter 11?
A strong answer covers
- A court-approved sale of assets under Section 363 of the Bankruptcy Code
- Buyers get the assets free and clear of most claims
- Often faster than a full plan of reorganization
- Usually starts with a stalking-horse bid, then an auction
- Sale proceeds then go to creditors in priority order
Intermediate
What's the difference between a liquidity problem and a solvency problem?
A strong answer covers
- Liquidity: not enough cash for near-term obligations
- Solvency: liabilities exceed asset value
- A company can be solvent but illiquid
- Different fixes: bridge financing vs. restructuring
Intermediate
A company has $500M of debt maturing in 9 months and can't refinance. What are its options?
A strong answer covers
- Amend and extend with existing lenders
- Distressed exchange or debt-for-equity swap
- Asset sales or new money (rescue financing)
- Chapter 11 if out-of-court options fail
Intermediate
Debtor-side vs. creditor-side advisory: what's the difference in your day-to-day work?
A strong answer covers
- Debtor side advises the company on its options and the plan
- Creditor side advises lenders on maximizing recovery
- Both build liquidity and recovery models
- Negotiation positions differ on valuation
Intermediate
What is a prepackaged Chapter 11?
A strong answer covers
- Company negotiates the plan with creditors before filing
- Votes are gathered in advance
- Can exit bankruptcy in weeks instead of months
- Lower cost and less disruption
Intermediate
What's the difference between secured and unsecured debt in a bankruptcy?
A strong answer covers
- Secured debt is backed by specific collateral
- Secured creditors recover first from that collateral
- Unsecured creditors share what's left
- Unsecured recoveries are usually much lower
Advanced
How would you value a distressed company?
A strong answer covers
- Use DCF and multiples but on normalized or restructured numbers
- Consider liquidation value as a floor
- Value the enterprise, then run the recovery waterfall
- Adjust for higher risk and uncertainty
Advanced
EV is $500, secured debt $300, unsecured $400. Walk through recoveries and what unsecured holders might negotiate for.
A strong answer covers
- Secured recovers 100% ($300)
- Unsecured gets $200, a 50% recovery
- Equity gets nothing
- Unsecured may push for equity in the reorganized company or argue for a higher valuation
Advanced
What is a liability management exercise, and why do lenders fight over them?
A strong answer covers
- Out-of-court moves like uptiers or drop-downs to raise new financing
- Can let some lenders jump ahead of others in priority
- Excluded lenders lose value, leading to lawsuits
- Lenders now sign cooperation agreements to resist
Advanced
Why would creditors argue for a lower valuation in Chapter 11, and equity for a higher one?
A strong answer covers
- Valuation decides who gets the equity in the reorganized company
- Lower value means senior creditors take more of the equity
- Higher value leaves room for junior claims and old equity
- Each side's expert valuation reflects its incentives
Advanced
What is the fulcrum security and why does it matter?
A strong answer covers
- The class where enterprise value runs out
- Partially repaid in the waterfall
- Usually receives most of the reorganized equity
- Investors buy it to gain control of the company
Advanced
A company has $900 of debt and $90 of EBITDA, with a $300 maturity next year. What would you recommend?
A strong answer covers
- Leverage is 10x, too high to refinance easily
- Explore amend and extend or an exchange first
- Consider asset sales or new money
- Prepare a Chapter 11 path if lenders won't agree
Quick quiz (14 questions)
Who gets paid first in a bankruptcy?
- Common shareholders
- Unsecured bondholders
- Secured lenders ✓
- Preferred shareholders
Secured lenders have claims on specific assets and sit at the top.
The absolute priority rule says:
- Everyone takes the same percentage loss
- Senior claims are paid in full before junior claims get anything ✓
- Junior claims are paid first because they took the most risk, then seniors split whatever is left
- The judge picks which creditors get paid
Payment flows down the stack in order.
Enterprise value is $500. Secured debt of $300 is paid in full, and unsecured bonds are owed $400. The unsecured recovery is:
- 100%
- 75%
- 50% ✓
- 0%
$500 − $300 secured = $200 left for $400 of unsecured claims: 200 ÷ 400 = 50%.
In bankruptcy, which claim ranks highest in priority?
- Unsecured bonds
- First-lien secured debt ✓
- Preferred stock
- Common equity
Secured first-lien lenders are paid first.
In bankruptcy priority, which claim ranks lowest?
- Second lien
- Subordinated debt
- Common equity ✓
- Preferred stock
Common equity is last.
What does 'subordinated' debt mean?
- It's paid before senior debt
- It charges no interest at all
- It's secured by the company's assets
- It's paid after senior debt ✓
Subordinated holders accept lower priority for higher yield.
Chapter 7 bankruptcy means:
- Reorganization
- Liquidation ✓
- A debt refinance
- An IPO
The business shuts down and assets are sold.
In bankruptcy, the automatic stay:
- Freezes creditor collection efforts ✓
- Pays employees before anyone else
- Cancels all of the company's contracts
- Forces the company to sell its assets
It gives the company breathing room to negotiate.
Why does DIP financing get super-priority?
- The SEC requires it in every bankruptcy
- It convinces lenders to fund a bankrupt company ✓
- It's always the cheapest debt available
- Shareholders demand it before filing
Without top priority, no one would lend into a bankruptcy.
Chapter 11 bankruptcy is mainly a:
- Liquidation
- A merger
- Reorganization ✓
- An IPO
The company keeps operating while it restructures.
Enterprise value is $600. First lien is owed $400, second lien $300 and unsecured $250. Which class is the fulcrum security?
- First lien
- Second lien ✓
- Unsecured
- Equity
Value runs out inside the second lien, so it's partly repaid and likely gets the equity.
Enterprise value is $600. First lien is owed $400 and second lien $300. What does the second lien recover?
- 100%
- 67% ✓
- 50%
- 0%
After the $400 first lien, $200 is left for the $300 second lien: 200 ÷ 300 ≈ 67%.
The best-interests test compares each creditor's recovery with:
- The original amount of the loan
- What it would get in a Chapter 7 liquidation ✓
- The company's current stock price
- What creditors got at other companies
A plan can't leave a dissenting creditor worse off than liquidation.
What is the fulcrum security?
- The most senior secured debt
- The class where value runs out, usually getting the new equity ✓
- The most junior class of debt, which is always wiped out and receives nothing in a restructuring plan
- The company's cash on hand
It's partly repaid and converts to ownership.
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