Walk me through a waterfall analysis. A company has €200M EV, €120M senior secured, €80M unsecured, €50M mezzanine. Where does value break?
A core Restructuring interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
Apply the absolute priority rule: senior secured gets paid first from the €200M EV, receiving €120M in full. Remaining €80M goes to unsecured, but they are owed €80M, so they get paid in full. No value remains for mezzanine (owed €50M) or equity. Value breaks at the mezzanine level.
WHAT INTERVIEWERS LISTEN FOR
- ✓Absolute priority rule determines payment order
- ✓Senior secured paid first, then unsecured, then mezzanine, then equity
- ✓€200M EV covers senior and unsecured fully, leaving nothing for mezzanine
COMMON MISTAKES
- ✗Forgetting to subtract senior from EV before paying unsecured
- ✗Assuming mezzanine gets partial recovery when EV is insufficient
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