Restructuring Capital Structure Case
This conversation was generated using Cook'd AI's career assistant and reviewed by Fallon Han from our editorial team for accuracy.
I am a postgraduate finance diploma student in Germany, moving from retail banking into restructuring. I am targeting a distressed debt fund in Frankfurt as an EU citizen. In interviews, I keep getting case questions on a stressed company. One historical question I heard was: how do you analyze the capital structure and decide what gets repaid first in a turnaround? I freeze when they ask for the sequence.
Good, that is exactly the kind of restructuring case you should expect. Start by saying you would first map the full capital structure and liquidity runway, then separate the business value from the claim stack. In a stressed situation, the key question is not only who is senior on paper, but who is actually getting paid from available value. Your answer should walk through operating cash flow, asset coverage, debt maturity walls, and any intercreditor terms before you talk about repayment priority.
How do I structure the answer in a clean way, especially if they push me to be practical and not just theoretical?
Use a simple four-step framework. First, assess liquidity and near-term solvency, so you know whether this is a balance sheet issue or a cash burn issue. Second, build the capital structure ladder: revolver, secured term loan, unsecured notes, mezzanine, preferred equity, and common equity. Third, estimate recoveries using enterprise value under downside scenarios, because repayment priority only matters if there is value left after collateral and senior claims. Fourth, state turnaround priorities: protect the core business, preserve cash, stabilize suppliers, and negotiate with the highest-pressure creditor group first.
If they ask what gets repaid first, should I just say secured lenders before unsecured and equity last?
That is the base answer, but in a strong interview you should go one layer deeper. Say: first, any super-senior liabilities or debtor-in-possession style funding if the company is already in a formal process; then the revolver and other secured debt according to collateral and intercreditor ranking; then unsecured creditors; then subordinated debt; then equity. Also mention that trade creditors and critical suppliers may be treated strategically, even if they are not highest in the legal waterfall, because the company may need them to keep trading. That shows you understand restructuring as a business rescue, not just a legal priority list.
How would I bring this back to a distressed debt fund in Frankfurt so it sounds relevant to the role?
Tie your answer to investor judgment. Say a distressed debt fund would care about where the fulcrum security sits, whether there is hidden value in the asset base, and whether the capital structure is cooperative or blocked by holdouts. Then explain that the fund wants to know if the best risk adjusted outcome is buying senior secured debt for downside protection or buying a deeper tranche with restructuring upside. Since you are in Germany, you can also mention that you would pay attention to local insolvency timing, creditor coordination, and cross-border exposure if the company has European operations.
Can you give me a model closing line I could use in the interview?
Yes. You could say: I would first determine liquidity, enterprise value, and the legal ranking of claims, then identify the fulcrum point in the structure. From there, I would prioritize cash preservation and creditor negotiations in a way that protects enterprise value, while repayment follows the contractual waterfall and the practical need to keep the business operating. That sounds concise, commercial, and restructuring focused.