Restructuring Interview Prep
Restructuring & Distressed Interview Prep
Master the recovery waterfall, the fulcrum security, and Chapter 11 — and walk into RX superdays ready.
Restructuring (RX) and distressed debt is the most technical, most accelerated, and most selective corner of finance recruiting. The interview goes deep fast: a generalist IB walkthrough won't save you when an MD asks you to lay out a recovery waterfall, identify the fulcrum security, or explain why a bond trades below its expected recovery. You need to actually understand how value breaks in a capital structure — not memorize a script.
IBFlash is an AI interview-prep app built for exactly this. You drill RX and distressed concepts with AI flashcards, run realistic AI mock interviews that pressure-test your reasoning, and complete interactive modeling tests on capitalization tables and recovery analysis. Everything is tuned to what PJT, Houlihan Lokey, Evercore, Lazard, and Moelis actually ask in 2026.
What restructuring is — and who recruits for it
Restructuring investment banking advises distressed companies and their creditors on how to fix an unsustainable capital structure, either out of court or through Chapter 11 bankruptcy. The work splits into debtor-side (advising the company) and creditor-side (advising lenders or bondholders), and it is dominated by a handful of advisory boutiques: PJT Partners, Houlihan Lokey, Evercore, Lazard, and Moelis. RX recruiting starts early — often sophomore year — with tiny analyst classes and sub-1% acceptance at the top shops, so being technically sharp in the interview is non-negotiable.
What the restructuring interview tests
Technically, RX interviews center on the recovery waterfall, the fulcrum security, distressed valuation, and bankruptcy mechanics — Chapter 11 vs. Chapter 7, out-of-court vs. in-court, DIP financing, 363 asset sales, the absolute priority rule, and cramdown. Expect classic accounting questions with a distressed twist (PIK interest and asset write-downs through the three statements, how a DCF changes for a distressed company). On the behavioral side, interviewers probe genuine interest in distressed situations, your read on recent cases, and whether you can stay composed while reasoning through ambiguity under pressure.
How to prepare with IBFlash
IBFlash turns RX prep into focused, repeatable reps. AI flashcards lock in the definitions and frameworks — waterfall priority order, how to spot the fulcrum, DIP super-priority, APR — and the app surfaces the concepts you keep missing so you stop re-studying what you already know. Then you run AI mock interviews that ask follow-ups exactly like an RX MD would, and modeling tests that have you build a cap table and allocate enterprise value across the claims. You practice the actual thinking, not flashcard trivia.
The recovery waterfall and fulcrum security
The single most important RX skill is allocating enterprise value down the capital structure by absolute priority: DIP and super-priority claims first, then secured, priority unsecured, general unsecured, and finally equity. The fulcrum security is the class where value 'breaks' — the last claim to receive partial recovery — and it is the one most likely to convert into the equity of the reorganized company, which makes its holders the real decision-makers in a plan. If you can build a waterfall, find the fulcrum, and explain why a security trades above or below its expected recovery, you are ahead of most candidates.
Restructuring interview overview
A typical RX process moves from a behavioral and technical first round into superdays heavy on capital-structure questions, and often ends with a modeling test or case study — frequently a cap table plus a short pitch on whether to buy a specific tranche of the capital structure. Because RX timelines are compressed and the technical bar is the highest in banking, candidates who walk in fluent in waterfalls, liability management (uptiers and drop-downs), DIP roll-ups, and recent situations consistently stand out. IBFlash is built to get you to that level of fluency before you sit down.
Sample Restructuring interview questions
Walk me through a recovery waterfall.
Estimate the company's distributable enterprise value, then allocate it top-down by absolute priority: DIP and super-priority claims, then first-lien secured, second-lien secured, priority unsecured (e.g., administrative and tax claims), general unsecured (senior and subordinated bonds, trade), and finally equity. Each class is paid in full before the next receives anything. The class where value runs out is the fulcrum security and recovers only partially.
What is the fulcrum security and why does it matter?
It's the most senior claim that does not get fully repaid — the point in the capital structure where value 'breaks.' Because it's partially impaired, it typically converts into the equity of the reorganized company. That makes fulcrum holders the key decision-makers in negotiating the plan of reorganization, so distressed investors often target buying the fulcrum to control the post-emergence equity.
Chapter 7 vs. Chapter 11 — what's the difference?
Chapter 7 is liquidation: a trustee sells the assets and distributes proceeds by priority, and the company ceases to exist. Chapter 11 is reorganization: the company (as debtor-in-possession) keeps operating, restructures its liabilities, and emerges via a confirmed plan. A company files Chapter 11 when it's worth more as a going concern than in liquidation.
Why might a company restructure out of court instead of filing Chapter 11?
Out-of-court restructurings — workouts, amend-and-extends, or distressed exchanges — are faster, cheaper, and more private, and they avoid the operational and reputational damage of a filing. They require near-unanimous creditor consent, so they work when the creditor group is small and cooperative. In court, a Chapter 11 can bind holdouts through cramdown and provides tools like the automatic stay, DIP financing, and 363 sales free and clear of liens.
What is DIP financing and why is it senior?
Debtor-in-possession financing is new financing a company raises after filing Chapter 11 to fund operations through the case. The court grants it super-priority — it's repaid before existing claims — to incentivize lenders to extend credit to a bankrupt borrower. It's often provided by existing first-lien lenders, sometimes as a roll-up, to protect and extend their leverage in the process.
How does a DCF change for a distressed company?
Cash flows are more uncertain and often negative near-term, so projections may be scenario-weighted and the discount rate (WACC) is higher to reflect elevated risk. You frequently lean more on liquidation or comparable-recovery analysis, and enterprise value can fall below total debt — which is precisely why a waterfall and fulcrum analysis becomes the operative valuation, not a clean DCF.
What is the absolute priority rule, and what is cramdown?
The absolute priority rule (APR) says senior classes must be paid in full before any junior class receives value. Cramdown is the mechanism that lets a court confirm a plan over the objection of a dissenting class, as long as the plan is 'fair and equitable' and doesn't unfairly discriminate — which generally means it respects APR for the objecting class.
What is a liability management exercise (LME)?
An LME is an out-of-court move by a distressed borrower to create liquidity or runway by exploiting credit-agreement flexibility. The two best-known forms are uptier transactions (a majority of lenders prime the rest by issuing new super-senior debt) and drop-downs (moving valuable collateral into an unrestricted subsidiary to raise new secured debt against it). Both subordinate existing lenders and have driven major creditor-vs-creditor litigation.
Restructuring interview FAQ
How hard is the restructuring interview?
RX is widely considered the most technical interview in investment banking. Beyond standard accounting and valuation, you're expected to fluently handle recovery waterfalls, the fulcrum security, bankruptcy mechanics, and recent distressed cases — often with rapid follow-ups. The bar is high because the analyst classes are tiny and the work is specialized.
What technicals do I need for a restructuring interview?
Master the recovery waterfall and absolute priority rule, how to identify the fulcrum security, Chapter 11 vs. 7, out-of-court vs. in-court restructuring, DIP financing, 363 sales, cramdown, and liability management (uptiers and drop-downs). You also need the standard IB technicals — three-statement modeling, valuation, and a DCF — with a distressed lens (PIK, write-downs, distressed EV).
Which firms are best for restructuring?
The leading RX practices are PJT Partners, Houlihan Lokey, Evercore, Lazard, and Moelis. PJT is strongest on large debtor-side mandates, Houlihan Lokey leads on creditor-side and deal volume, and Evercore balances both. These shops recruit early and take very small classes, so technical preparation is critical.
Do I need prior finance experience to break into restructuring?
Strong technicals and demonstrated interest matter more than a perfect resume, but RX recruiting is early and selective, so you should start preparing well ahead of interviews. Following recent bankruptcies and distressed situations, and being able to discuss them intelligently, signals genuine interest that interviewers look for.
How does IBFlash help with restructuring prep?
IBFlash combines AI flashcards on RX and distressed concepts, realistic AI mock interviews that ask the same kind of follow-ups an RX MD would, and interactive modeling tests on cap tables and recovery analysis. It tracks the concepts you keep missing and focuses your reps there, so you build real fluency instead of memorizing scripts.
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