Middle Market Credit Interview Prep
This conversation was generated using Cook'd AI's career assistant and reviewed by Fallon Han from our editorial team for accuracy.
I want a mock interview focused on how to underwrite a borrower and explain the risks of a capital structure. I am coming from Big Four audit in the U.S. and interviewing for a middle-market direct lender role. Can you start with the kind of question I should expect?
Absolutely. A very common first question is: Walk me through how you would underwrite this borrower and decide whether the leverage is acceptable. The interviewer wants to hear a clear framework, not just accounting knowledge. Start with business quality, then debt capacity, then downside protection. For example: I would first understand the borrower’s revenue drivers, customer concentration, margin stability, and cyclicality. Then I would normalize EBITDA for one-time items and test whether reported earnings are durable. After that, I would look at leverage on a gross and net basis, interest coverage, and free cash flow conversion. In a direct lending context, I would also focus on whether the structure has enough covenant protection and whether the company could survive a reasonable stress case without needing a rescue refinance.
How do I talk through leverage ratios in a way that sounds more like a lender than an accountant?
Use leverage ratios as a credit risk tool, not just a math exercise. You can say: Leverage tells me how much debt the borrower can support relative to cash earnings, but I care more about sustainable leverage under stress than peak leverage at close. Then compare total leverage, senior leverage, and secured leverage if relevant. Explain what would make the ratio acceptable for the business profile. For a stable, recurring revenue borrower, a higher leverage level may be fine if cash flow is predictable. For a cyclical or highly concentrated borrower, I would want tighter leverage and faster deleveraging. A strong answer also mentions sponsor support, acquisition integration risk, and whether the company has any add-backs that inflate EBITDA.
What should I say if they ask about covenant protection and why it matters in a direct lending deal?
You should frame covenants as early warning tools that protect the lender before a problem becomes a default. A good answer is: Covenant protection matters because it gives the lender visibility into deterioration and the ability to intervene when performance weakens. In a middle-market direct loan, I would look for a maintenance leverage covenant, possibly a fixed charge coverage test, and clear definitions around EBITDA adjustments. I would also assess cure rights, baskets, and ability to incur additional debt. The key point is not just that covenants exist, but whether they create real discipline. If the package is too loose, the lender may only find out about credit issues when liquidity is already tight.
Can you give me a stress-case question and how I should answer it?
A classic stress question is: If revenue falls 10 percent and EBITDA margins compress by 200 basis points, what happens to the borrower’s ability to service debt? The right approach is to show a methodical process. First, estimate the EBITDA decline and translate that into lower cash flow. Second, test interest coverage and leverage under the stressed case. Third, see whether free cash flow is still positive after capex and working capital needs. Then discuss whether the borrower can absorb the downside through liquidity, revolver availability, or covenant headroom. A strong lender answer also notes what would happen operationally, such as pricing pressure, customer churn, or delayed collections. You want to show that you can identify the point at which the capital structure becomes vulnerable.
How do I connect my Big Four audit background to these questions without sounding too technical or too narrow?
Position your audit background as a strength in diligence, quality of earnings, and control awareness. You can say: My audit experience trained me to understand the financial statements deeply, identify unusual trends, and challenge the quality of reported earnings. That translates well into credit work because I am careful about EBITDA adjustments, working capital swings, and whether cash conversion matches reported profitability. Then pivot quickly to the lender mindset: In a credit role, I would use that foundation to assess downside risk, not just historical accuracy. That sounds credible and shows you understand the difference between audit and underwriting.