- Why are financial maintenance covenants important?
- What are some factors to look at when lending money to a prospective borrower? …
- What is Debt Capacity?
- What are some key credit ratios?
- What will influence the appropriate leverage level for a borrower?
LBO Model Interview Questions: What to Expect
How many boxes of macaroni and cheese were eaten in the United States last year?
Questions like this are meant to test your ability to deduce an answer from a limited set of information and assumptions. You and your interviewer both know that it would be impossible for you to know or even calculate the correct answer, so your interviewer is solely looking for the factors you use to come to a logical answer. Be as detailed as possible in why you are making the assumptions when coming to a final answer.
“In knowing that the population in the United States is around 325 million people, my biggest factors in determining my answer will be that children between the ages of two and ten consume 75% of the mac and cheese each year and that the other 25% is consumed by ages ten and above. The other factor is that the kids eat one box per week and the ages over ten eat two per month. So, Ill determine that there are 80 million children between two and ten and figure that theyll eat 4.2 billion boxes. Then Ill determine that 240 million people over ten eat two per month to get 5.7 billion boxes of mac n cheese. When added together, Id say the final answer is right around 10 billion boxes of man n cheese are eaten in the US each year.”
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Leveraged Finance vs Corporate Banking vs FSG vs Restructuring Groups
Since we just explained the differences between Leveraged Finance and DCM, we’ll now compare it with a few other debt-related groups.
Banks with strong Balance Sheets also tend to have strong Leveraged Finance teams because they can take on more risk for clients.
In the U.S., for example, JP Morgan and Bank of America Merrill Lynch tend to be among the strongest banks in this area, followed by the other large commercial banks.
At some banks, LevFin is more of a markets-based role, and some firms label it “Leveraged Debt Capital Markets” or “Leveraged Finance Origination & Restructuring” or other, slightly different names.
At other firms, Leveraged Finance might be classified under investment banking and work more closely with the M&A team.
Working in a markets-based team won’t necessarily kill your exit opportunities, but it’s less than ideal if your goal is private equity.
The Leveraged Finance Analyst Role: Workstreams, Projects, and Sample Assignments
You complete similar types of assignments in Leveraged Finance as you do in DCM, and investors in both areas care most about avoiding losses since their upside is capped.
If you’re interested in credit analysis, you can find great examples in the DCM article.
The main differences are:
You’ll spend more time building different financing scenarios, such as subordinated notes vs. mezzanine vs. preferred stock, and comparing the results. Finally, you’ll also build models for transactions such as leveraged buyouts and M&A deals.
Here are a few examples of different types of analysis from Leveraged Finance teams: