Credit Case Interview Mastery
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I am a final-year finance student in Germany with an EU passport, and I am targeting a large-cap corporate banking analyst role in Frankfurt. I want to practice a credit case interview based on a historical borrower scenario. The key question is whether the borrower can support new debt and which metrics matter most. Can you walk me through how to structure the answer?
Absolutely. For a corporate banking credit case, start with a clear lending view, then prove it with a few core metrics. I would structure it in four parts: business quality, leverage, repayment capacity, and covenant headroom. For a borrower adding new debt, the most important questions are: Is cash flow stable? Is leverage already high? Can free cash flow cover interest and amortization? And how much downside room is there if EBITDA falls? In a historical case, interviewers usually want you to tie the numbers back to credit risk rather than just reciting ratios.
If I am under time pressure, which three metrics should I prioritize first?
Prioritize Net Debt to EBITDA, Interest Coverage, and Debt Service Coverage or Free Cash Flow after capex. Net Debt to EBITDA tells you how stretched the balance sheet is. Interest Coverage shows whether operating profit can comfortably pay interest. Free Cash Flow matters because debt is repaid from cash, not accounting earnings. If the borrower has seasonal working capital swings, also check whether cash conversion is reliable across the cycle.
How do I talk about covenants in a way that sounds like a corporate banking analyst in Frankfurt?
Use covenant language that shows control and downside protection. Say you would test maintenance covenants such as maximum leverage and minimum interest coverage, and ask whether there is enough headroom after the new debt is added. Then connect that to stress cases. For example, if EBITDA drops by 10 to 15 percent, does the borrower still stay within covenant limits? A strong answer also mentions whether covenants are springing, how tight the package is, and whether the bank would require amortization or collateral to reduce risk.
What is the best way to explain repayment capacity if the company has decent EBITDA but weak free cash flow because of capex?
That is a great point to flag. You should say EBITDA alone is not enough if capex is heavy. Repayment capacity depends on post capex cash flow, working capital needs, and any dividend leakage. If capex is elevated because the business is still investing, the lender may rely more on asset coverage, stricter amortization, or a lower leverage tolerance. In your answer, make it clear that you would normalize capex and separate maintenance capex from growth capex before judging credit quality.
Can you give me a concise model answer I could use in the interview for a borrower like this?
Yes. You could say: The borrower may support new debt if leverage remains prudent, cash flow is resilient, and covenants have enough headroom under stress. I would focus first on net debt to EBITDA, interest coverage, and free cash flow after maintenance capex. Then I would test whether the company can still meet repayments if EBITDA weakens or working capital absorbs cash. If the new borrowing pushes leverage too high or covenant headroom becomes thin, I would recommend a smaller facility, stronger amortization, or tighter covenants to protect the bank.