Liquidity And Covenant Strategy
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 final-year MBA in the U.S. on an F-1 visa recruiting for restructuring advisory at a large consulting firm. I want a stress-test dialogue on a distressed company nearing default. Can you act like the interviewer and push me on liquidity runway, covenant breaches, and stakeholder negotiations?
Absolutely. Scenario: a manufacturing client has $45 million of cash, burns $8 million per month, and has a revolving credit facility with a leverage covenant they will breach next quarter. You are the advisor. First question: how would you frame the immediate workplan in the first 72 hours, and what data would you ask for to assess liquidity runway and near-term default risk?
I would start by building a 13-week cash flow, then confirm opening cash, weekly receipts and disbursements, debt service dates, and any restricted cash. I would also review the revolver terms, springing covenants, minimum liquidity requirements, and any cross-defaults. The goal is to quantify runway, identify the earliest default trigger, and separate urgent actions from longer-term restructuring options.
Good structure. Now push further: the company tells you it can preserve only $2 million per month by cutting discretionary spend, but vendor payments and payroll are largely fixed. How would you assess whether that is enough, and what would you tell management if the runway is still too short?
I would test the cut against the weekly cash forecast and measure how many weeks of liquidity it actually adds. If the savings are not enough, I would recommend immediate actions like delaying noncritical capex, pausing distributions, accelerating collections, and negotiating payment terms with key vendors. I would also tell management that they need a formal stakeholder strategy because operational cuts alone will not solve a structural liquidity gap.
Now the covenant breach is imminent and the lender is asking for a waiver. What is your approach to negotiating with the bank, and how would you balance transparency with preserving leverage for the client?
I would advise being transparent with the lender about the cash position, the forecast, and the turnaround plan, because credibility matters in a distressed situation. At the same time, I would avoid over-disclosing unverified assumptions and would keep the message focused on a realistic path to stabilization. I would propose a waiver request paired with updated reporting, tighter controls, and maybe additional collateral or fees if needed, while trying to preserve enough flexibility for a broader amendment or restructuring later.
Final push: the bondholders are unhappy, trade vendors are threatening to cut off supply, and management is worried about reputational damage. Walk me through how you would prioritize stakeholder negotiations and what tradeoffs you would explain to the client in the interview.