Restructuring Interview Questions and Answers

Restructuring interviews layer RX-specific questions, Chapter 11 versus Chapter 7, DIP financing, fulcrum securities, on top of the standard DCF, LBO, and accounting questions every banking candidate gets, and the technical bar is often lower than it sounds, since most candidates simply haven't studied the bankruptcy mechanics. This page is the practice set. For the group overview, read restructuring in investment banking; here you'll drill ten RX-specific prompts plus three local reps.

TL;DR

• RX interviews combine standard IB technicals with bankruptcy-specific questions.
• The Waterfall-First Method values claims in strict seniority order before discussing negotiation.
• Chapter 11 usually recovers more for creditors than Chapter 7, because a going concern beats a fire sale.
• Ten prompts below cover DIP financing, fulcrum securities, and debtor versus creditor advisory.
• The local pack checks Chapter 11 mechanics, DIP financing, and fulcrum-security logic.

What is the Waterfall-First Method?

The Waterfall-First Method answers any distressed-valuation question by building the recovery waterfall before discussing anything else, because seniority order determines who actually gets paid.

1. Estimate the reorganization or liquidation value of the business first.
2. List every claim in strict seniority order: secured debt, unsecured debt, subordinated debt, preferred stock, common equity.
3. Allocate value down the waterfall, starting at the top, until the value runs out.
4. Identify the fulcrum security: the class that is only partially covered once the value runs out.
5. Explain what that means for negotiation: the fulcrum holders effectively control the reorganization terms, since their recovery is most sensitive to the value assigned to the business.

Worked example: finding the fulcrum security

Prompt: A company's total enterprise value in reorganization is estimated at 400. Its capital structure, in order of seniority, is 250 of secured debt, 200 of unsecured debt, and common equity below that.

Allocate value down the waterfall. Secured debt is paid in full first:

$$400-250=150 \text{ remaining for unsecured debt}$$

Unsecured debt is owed 200 but only 150 remains, so unsecured debt recovers 150 divided by 200, or 75%. Common equity recovers nothing, since the value ran out before reaching it.

$$\text{Unsecured recovery}=\frac{150}{200}=75\%$$

Unsecured debt is the fulcrum security here: it's the class that is only partially covered, and in most reorganizations it converts into the majority of the new company's equity, effectively becoming the new owner. Secured debt is fully covered and largely indifferent to the exact reorganization value, and common equity is wiped out regardless, so unsecured debt is the class with the most at stake in how the 400 value is negotiated.

Practice inside this guide

Restructuring interview practice

Question 1 of 3

Explain the difference between Chapter 11 and Chapter 7, and why creditors usually prefer Chapter 11.

Your answer

Reveal model structure

The pack above checks Chapter 11 versus Chapter 7 mechanics, DIP financing, and fulcrum-security identification as three separate reps.

Ten more restructuring prompts to practice

1. Why would a company choose an out-of-court restructuring over filing Chapter 11? An out-of-court restructuring, extending maturities, modifying interest, or a debt-for-equity swap, can be done more quickly and at lower cost than an in-court bankruptcy, provided enough creditors agree without a formal court process.
2. What is the difference between the debtor's advisor and a creditor's advisor's role? The debtor's advisor tends to be more hands-on, running the process and negotiating with multiple creditor classes, while a creditor's advisor is more reactionary, dependent on the debtor for information and reacting to proposed terms.
3. Why might Chapter 11 recover more for creditors than Chapter 7? Chapter 11 reorganizes the business as a going concern, preserving value from continued operations, while Chapter 7 liquidates assets outright, usually at a fire-sale discount to their operating value.
4. What is a cramdown? A cramdown is when a bankruptcy court approves a reorganization plan over the objection of a dissenting class of creditors, provided the plan meets certain fairness and priority requirements under the bankruptcy code.
5. Why is DIP financing often senior to pre-petition debt? Lenders won't extend new credit to a distressed company without priority ahead of existing claims, so DIP financing is typically granted a senior or priming lien to compensate for the added risk of lending into bankruptcy.
6. What's the difference between a secured and an unsecured creditor in a recovery waterfall? A secured creditor has a specific claim against collateral and is paid from that collateral's value first; an unsecured creditor has a general claim against the remaining estate and is paid only after secured claims are satisfied.
7. How does an asset sale under Section 363 differ from a plan of reorganization? A Section 363 sale lets a company sell assets during Chapter 11 outside the normal plan-confirmation process, often faster, which can be useful when a buyer wants certainty and speed rather than waiting for a full plan vote.
8. Why might a distressed company's bonds trade at a steep discount to par well before a bankruptcy filing? The market is pricing in the expected recovery rate given the estimated reorganization or liquidation value relative to the total claims ahead of and including that bond, not the face value of the bond itself.
9. What's the role of a creditors' committee? An official committee of unsecured creditors represents that class's collective interests in negotiations over the reorganization plan, often hiring its own financial advisor and counsel separate from the debtor's team.
10. Why do restructuring bankers care about liquidation value even when a going-concern reorganization is the likely outcome? Liquidation value sets a floor: no creditor class should recover less under a reorganization plan than it would in a hypothetical liquidation, so it's a key benchmark in valuing and negotiating any plan.
11. What's the difference between a prepackaged and a prenegotiated bankruptcy? In a prepackaged bankruptcy, the company has already lined up creditor votes on a plan before filing, letting it move through court quickly; a prenegotiated bankruptcy has a deal in principle with key creditors but still solicits votes formally after filing.
12. Why might a secured lender still show up at negotiations even though its claim looks fully covered? Even a fully covered secured lender cares about the timeline, fees, and any priming risk from new DIP financing, so it stays engaged even without much economic risk to its own recovery.

What to practice next

More RX-specific reps live in the drills library, filtered to restructuring. For the standard technicals that come alongside these, see distressed valuation and recovery analysis and the restructuring adviser's role.

Chapter 11 vs. Chapter 7 at a glance

Frequently Asked Questions

Is the technical bar in RX interviews higher than in a standard IB interview?

You'll still get the standard IB technicals (DCF, LBO, accounting, M&A) plus RX-specific questions layered on top. The RX-specific bar is often lower than its reputation suggests, since most candidates simply haven't studied the bankruptcy-specific material.

What's a fulcrum security, in one sentence?

The most senior class of claims that does not recover in full, which typically converts into the reorganized company's equity and effectively controls the negotiation over the plan.

Why does DIP financing matter so much to a distressed company's survival?

Without new financing, a distressed company can run out of cash for payroll and vendors mid-process; DIP financing, usually senior to existing claims, funds operations while the reorganization plan is negotiated.

Is debtor-side or creditor-side work more common at boutique RX shops?

Both exist, and many RX groups work both sides across different mandates. The debtor's side tends to involve more hands-on process management, while the creditor's side is more reactionary to the debtor's proposals.

How is a recovery waterfall different from a standard valuation?

A recovery waterfall starts from an estimated enterprise value and allocates it strictly by seniority to determine each claim class's recovery, rather than solving for a single equity value the way a standard DCF or comps analysis does.

Do RX interviews still ask standard technicals like WACC or accretion/dilution?

Yes. Expect the full standard IB technical set, DCF, LBO, three statements, accretion/dilution, alongside the RX-specific bankruptcy and credit questions covered here.

Sources

• Wall Street Prep: restructuring interview guide and technical questions (checked September 2026).
• Mergers & Inquisitions: restructuring investment banking group (checked September 2026).
• Restructuring Interviews: top 15 restructuring interview questions (checked September 2026).