Every senior at my school gives me a different answer. Here is the debt stack I have curated. If anybody works in debt please correct this naive sophomore: Revolver -> ABL -> TLA -> TLB -> TLC -> TLD&E -> first lien -> second lien -> Senior unsecured (IG debt) -> Junior subordinated (HYB) -> Warrantless Mezz -> Warranted Mezz -> PIK -> Convertibles -> Preferred Equity-> Common Equity
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Based on the most helpful WSO content, your debt stack is mostly accurate but could use some clarification and refinement. Here's a corrected and structured version of the debt stack:
Revolver: Often senior secured, collateralized by working capital assets like accounts receivable and inventory. It is typically the most senior in the capital structure and has the lowest interest rate.
Asset-Based Lending (ABL): Similar to a revolver but specifically tied to the value of assets like inventory or receivables. It is also senior secured.
Term Loan A (TLA): Senior secured, amortizing evenly over its life, and syndicated to banks. It has lower interest rates compared to other term loans.
Term Loan B/C/D (TLB/TLC/TLD): Institutional term loans, junior to TLA, with higher interest rates. They are either unsecured or secured by a junior lien. They typically have a bullet repayment schedule.
First Lien Loans: Secured by a priority lien on the company's assets. These are senior in the repayment waterfall.
Second Lien Loans: Secured by a junior lien on the company's assets, subordinate to first lien loans.
Senior Unsecured Debt (Investment Grade Bonds): Not secured by specific assets but backed by the issuer's creditworthiness. These are typically issued by companies with strong credit ratings.
Junior Subordinated Debt (High Yield Bonds): Unsecured and subordinate to senior debt. These are riskier and carry higher interest rates.
Mezzanine Debt:
Payment-in-Kind (PIK) Debt: Allows interest to accrue and be paid later, often in the form of additional debt.
Convertible Debt: Debt that can be converted into equity at a predetermined price.
Preferred Equity: Equity with a higher claim on assets and earnings than common equity, often with fixed dividends.
Common Equity: The most junior in the capital structure, representing ownership in the company.
This structure aligns with the typical repayment waterfall and risk hierarchy seen in leveraged finance and capital markets. Let me know if you need further clarification!
Sources: Overview of Leveraged Finance, Overview of Leveraged Finance, https://www.wallstreetoasis.com/forum/investment-banking/how-to-prepare-for-restructuring-technical-questions?customgpt=1, How to Prepare for Restructuring Technical Questions
More or less. But that is so granular. For entry level positions imo. I’m in a debt/credit lending position.
It’s easier to just think senior secured vs unsecured vs first/second lien into mezz
^ agreed with above that you can simplify it a lot, would also add DIP assuming this is for a rx interview
It’s for FSG/Sponsor Finance/DCM interviews but will add DIP as well. What did you say as the answer when asked about who gets priority in a default? Which tranches did you leave out?
Honestly for undergrads there really arent that many tranches you need to focus on. I interviewed for both rx and MF credit and in both cases they would really give 3 tranches for case studies.
For rx i would probably say something like
DIP/secured/unsecured/mezz/equity
and for credit would go 1L/2L/unsecured/mezz/equity
I'd suggest being careful not to mix debt types with actual hierarchy. See below the terminology used to decide the seniority of instruments from least accurate to most accurate.
It doesn't flow like that one product at a time, a lot of those are pari passu. ABL has 1st lien claim on its own collateral but honestly don't even mention an ABL, most companies don't have it and it's too in the weeds.
Revolver, TLA, TLB, any TL really are all usually first lien secured products that are all pari. Secured bonds are generally pari as well.
Next I think of 2nd lien secured products like a second lien TL.
Then I'd move to normal way senior unsecured notes (bonds). Subordinated debt would sit behind those bonds.
For equity you typically see pref and then common.
Those are by far the most common products and should be more than thorough enough for an interview.
Source - LevFin VP
Thank you very much for the clarification!
On top of getting the ordering right on paper, it also helps to be able to explain the stack out loud clearly since that’s how it’ll show up in interviews.
One thing that’s helped me is practicing this live instead of just staring at notes. I’ve been using a tool called Minerva (ask-minerva. com) alongside the usual guides. You pick the product group you care about, and it runs a live, voice‑based mock interview where you have to walk through answers while it acts like an interviewer and pushes with follow‑ups. At the end it breaks down what you did well vs. what was off and if you log in it tracks your sessions over time.
For stuff like the debt stack, I’ve been drafting a simple, clean version (by priority of claims / security / typical pricing) and then running a few reps in Minerva to make sure I can actually explain it coherently under pressure rather than just memorizing a long list.
That’s a good tip I will try this
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