Leveraged Finance Technical Interview Questions

OP —who’s the Lev Fin interview with? I typically pull their list of Left lead/right lead deals for starters, and analyze the set of deals to get a sense of what they focus on (for example TD Bank - they do a lot of Canada deals + Fiber industry space they’re in like every Fiber deal….

@OldSchoolCool—appreciate the incredible testimonial

“Technicals” aren’t as simple as IB w/ memorizing the Algebra equations and Depreciation question, but long story short read some of my posts. The more u dig in and understand the space, the more you’re gonna be able to conceptualize and actually contribute to a dynamic conversion vs sitting in the hot seat. Happy to dive further if u ask

Good. Worried is good—motivates you to take action. Let’s see if you should be worried.

Welcome to the Leveraged Finance interview. Hey I’m curious- What’s the definition of “leverage”?

Sorry was busy. I should have clarified - what’s the equation, including numerator and denominator

= Leverage

= Debt / EBITDA

Ok Lev Fin Basics for 200: Loan vs. Bond?

List as many differences as possible, and key considerations from a borrowers perspective in having that piece of debt vs. the other

Lev Fin for 500: Role/Strategy of Bank: Relationship Lending Model vs. Originate-to-Distribute Model

Explain what each means and the differences, including fees

Yea, oldschool cool is on it. Theres another web called lifeandlevfin that has a good overview and lbo case study

Assuming origination side gotta know what LF “does” and pros/cons for some of the different products. Also would make sure you understand some rough bond math.

Products:

Term Loan B: floating rate, 7 yr maturity, 101 soft call for 6 months, 1% amort a year, secured 1st lien

Second Lien TL: floating, 8 yr maturity, 102,101 hard call, no amort, secured second lien

HY bonds: fixed rate, 5-10 year tenors, most have calls after ~50% of tenor (ie. 5 year with non-call for 3 years, they’ll have a makewhole that is very prohibitive), no amort, secured or unsecured
 

Loan Pros: very flexible and can be repriced at no premium after 6 months (for term loan B, not 2L), spreads are tight af these days, cheapest cost of capital

Cons: amortization required, ‘some’ have covenants required (all covlite tho unless in MM), lower leverage levels generally

HY pros: fixed rate, no amort, higher leverage levels allowed generally, can do unsecured notes and keep collateral for other things (like an ABL revolver)

Cons: significant call provisions that prevent attractive refinance options, must get ratings (TLs will also almost always be rated unless in MM but not absolutely required) minimum issuance size of like $300-400mm (again not super relevant unless in MM), pricing is more expensive than term debt

For bond math, just understanding generally how price/coupon/yield works is super important. Ex. If you have a bond with a 5% coupon that is trading at 99.0 with 2 years until maturity is the yield higher or lower than 5%? Higher because the debt is trading below par (price and yield are inversely related)

Other than that just classic IB/acct questions (walk through three stmt model, etc) and classic fit questions. If you have some time would def recommend the other primers linked in the thread. Good luck!!