A client has €80M EBITDA and €400M net debt. Senior secured €250M, unsecured €150M. How would you analyze the capital structure in a restructuring scenario?
A core Restructuring interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
Leverage is 5.0x — distressed for most sectors. Senior secured €250M (3.1x) likely covered in a restructuring; unsecured and below are impaired. Apply the waterfall: senior secured first, then unsecured, then equity (wiped). Fulcrum security is where value breaks — here likely the unsecured tranche. They convert to equity in a debt-for-equity swap. Equity holders typically get little to nothing.
WHAT INTERVIEWERS LISTEN FOR
- ✓Leverage of 5.0x indicates distress
- ✓Senior secured debt likely fully recoverable
- ✓Unsecured debt is the fulcrum security
- ✓Equity holders likely wiped out
- ✓Debt-for-equity swap for unsecured creditors
COMMON MISTAKES
- ✗Ignoring the waterfall priority structure
- ✗Assuming all debt is treated equally
- ✗Overlooking the fulcrum security concept
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