Direct Lending interview questions

A screening calculation used before any deeper credit discussion.

A borrower has $60m of debt, $10m of cash and $12m of EBITDA. Calculate gross and net leverage. Why might both figures mislead a lender?

Tests whether a candidate understands floating-rate loan sensitivity.

A company has $80m of floating-rate debt at SOFR + 550bp and $20m of EBITDA. SOFR rises from 3% to 5%. Calculate cash interest and EBITDA-to-interest coverage before and after the move.

A first-round question testing whether a candidate can read a basic term sheet.

A lender offers a borrower a five-year $100m first-lien term loan at SOFR + 600bp. Explain the main economics and protections in plain English.

A distinct discipline from cash flow lending, and common in retail and distribution credits.

How does asset-based lending differ from cash flow lending? Construct a borrowing base for a distributor with $200m of receivables and $150m of inventory.

A modelling-style prompt used to test whether EBITDA becomes real deleveraging cash.

A borrower generates $30m of EBITDA. Cash interest is $9m, cash taxes are $3m, maintenance capex is $5m, and working capital consumes $4m. How much cash is available for debt paydown? What could make the answer wrong?

Tests whether you think about the fund, not just the individual credit.

You're building a $2bn direct lending fund. How many positions, how do you diversify, and what returns should LPs expect?

Tests whether candidates treat a maintenance covenant as an early-warning tool rather than a number to maximise.

A company has $50m of net debt, a 5.5x maximum net-leverage covenant and $12m of EBITDA. It expects EBITDA to fall 15%. Is it in breach, and what would you investigate before agreeing to a waiver?

A practical underwriting follow-up after management presents adjusted EBITDA.

Management reports $20m of adjusted EBITDA, including $3m of restructuring costs and $2m of projected synergies from an acquisition that has not closed. How would you decide what EBITDA to underwrite?

Direct lending interviews start with why private credit won share from banks.

Why would a sponsor choose a unitranche from a private credit fund over a broadly syndicated loan from a bank, when the unitranche is more expensive?

The situation every private credit portfolio faces, and where returns are actually determined.

A portfolio company breaches its leverage covenant. The sponsor asks for an amendment. How do you respond?

The analysis a credit committee actually decides on.

How do you construct a downside case for a credit investment? What does it have to survive?

A credit-committee scenario requiring an explicit recommendation, not a list of factors.

Choose one loan. Loan A pays SOFR + 700bp, is second lien at 5.0x total leverage, and has 1.5x EBITDA of equity cushion. Loan B pays SOFR + 525bp, is first lien at 4.0x total leverage, and has 3.0x EBITDA of equity…

A direct-lending credit-agreement review where a lender must connect covenant arithmetic to the provisions that can erode it.

You are the underwriting associate reviewing a sponsor-backed unitranche amendment. Calculate headroom using lender-defined EBITDA, test the proposed add-on, identify the document leakage, and prepare the approval markup…

A direct-lending underwriting case testing liquidity sequencing, collateral quality and lender protections.

You are the underwriting associate on a unitranche loan to a distributor. The company misses plan after close and requests an amendment. Evaluate each update and prepare a credit-committee recommendation.

A credit-agreement lab combining covenant arithmetic, document leakage and practical markups.

You are reviewing the first credit-agreement draft for a sponsor-backed borrower. Calculate covenant headroom, find the provisions that can move value away, and send the essential markup.

An offer-level judgement question about incentives during a stressed portfolio-company situation.

A sponsor-backed borrower needs $15m of liquidity. The sponsor says it has reserves but wants lenders to fund a super-senior delayed-draw tranche first. How would you evaluate the request?

A direct-lending associate review of a liquidity model and draft credit approval memorandum.

You are reviewing a unitranche underwriting for a healthcare-services company one hour before credit committee. Find the material flaws in the liquidity case, decide what the team must repair, and prepare a concise…

A direct-lending scenario lab testing leverage capacity, interest coverage and underwriting discipline for a sponsor add-on.

A sponsor requests incremental unitranche debt to fund an add-on. Calculate the headroom, test the pro forma interest burden, and decide whether the lender should fund the request as proposed.

Private credit interviews go deep on documentation, because that is where the risk lives.

Beyond the leverage covenant, which credit agreement terms do you negotiate hardest, and why?

A direct-lending data-room exercise built around EBITDA quality, liquidity and documentation.

You have 45 minutes before the screening committee for a $275m unitranche. Review the extracts, choose the next diligence action, and draft a credit recommendation.

A direct-lending analyst screening a sponsor-backed unitranche before credit committee.

You are reviewing a sponsor's data room for a $240m unitranche to finance a healthcare-services acquisition. Work through the materials as they arrive, make the required decisions, and write the credit-committee…

The core analytical exercise of a private credit investment team.

You're underwriting a $300m unitranche to a sponsor-backed software business at 6.0x leverage. What is your analysis, and what protections do you negotiate?