Private Credit Interview Case Mastery
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I am in a lending case for a private credit interview in New York. I have 6 years in corporate finance, and I need to sound like a senior analyst when I walk through credit quality. How should I structure my answer?
Start like a lender, not a banker. I would frame it in four steps: business model, leverage and cash flow, downside protection, and covenant package. First, explain how the borrower makes money and what drives revenue stability. Then move to debt capacity using EBITDA, free cash flow, and leverage trends. After that, test the downside: what happens if volume falls, margins compress, or working capital spikes. Finally, tie it to covenants and ask whether the structure gives you early warning if performance deteriorates.
What specific credit points would make me sound more senior in a case discussion?
Use lender language that shows judgment. Say whether the borrower has recurring, visible cash flow or is cyclical and volatile. Call out customer concentration, contract duration, refinancing risk, and any sponsor support. Then discuss whether leverage is appropriate for the risk profile, not just whether it looks fine on paper. A senior answer also mentions whether EBITDA is high quality or inflated by add-backs, and whether cash conversion is strong enough to service debt through a downturn.
The case has a covenant package with a leverage test and a minimum interest coverage test. How should I analyze those?
Treat covenants as both protection and signal. Ask whether the leverage test is tight enough to catch deterioration before liquidity becomes a problem. Look at the cushion today and under a downside case. For interest coverage, check how sensitive it is to EBITDA compression and rate increases. If the borrower has floating-rate debt, rising rates can hit coverage faster than revenue weakness. Then explain whether you would want a step-down schedule, tighter baskets, or a springing covenant tied to revolver usage.
If the interviewer pushes me on borrower risk, what are the main red flags I should bring up?
Focus on the risks that can break the credit, not just generic concerns. The big ones are aggressive leverage, weak free cash flow, customer concentration, short-dated debt, and cyclical end markets. Also flag weak covenant headroom, heavy acquisition dependence, and management teams that rely on add-backs to make EBITDA look stronger. If the business is fast-growing but burning cash, say the risk is execution and liquidity, not just leverage. The key is to connect each red flag to a likely failure mode.
How do I close the answer if I want to sound confident but not overstate the credit?
Close with a balanced lender view. For example: the credit looks acceptable if the borrower can sustain cash flow through a moderate downturn, maintain covenant headroom, and avoid concentration or refinancing stress. But if downside assumptions show coverage tightening quickly, I would either lower leverage, require tighter covenants, or price for the risk. That sounds mature because you are not just approving or declining the deal, you are showing how structure should match risk.