Private Credit Technical Interview Questions, Answered with the Math

"EBITDA is $50mm, debt is $250mm and the cash coupon is 9.5%. What happens to coverage if base rates rise 100 basis points?" Coverage goes from 2.1x to 1.9x, and the arithmetic takes ten seconds. The interviewer is grading the ten seconds after it: what the move does to the covenant, to the revolver and to the sponsor's decision to put money in.

The thirty questions below sit one level under the forty-question list. Each gives the lender's answer in two to four sentences, what the question tests, the usual mistake and the arithmetic where there is one. The interview guide explains the process around them. Examples are illustrative; market figures carry a source and a date.

Leverage and coverage: the multiple sets a ceiling, coverage sets the loan

1. First-lien, total or net leverage: which one does the lender underwrite?

All three, for different purposes. With $210mm of first lien, $60mm of second lien, $20mm of cash and $50mm of EBITDA, first-lien leverage is 4.2x, total leverage is 5.4x and net leverage is 5.0x. First-lien lenders size on the first, junior lenders on total, and covenants are often written on net.

Tests: Whether you name the numerator before you compute.

Common mistake: Netting cash that sits in a foreign subsidiary or arrived from a revolver draw.

2. EBITDA is $50mm, debt is $250mm and the cash coupon is 9.5%. What happens to coverage if SOFR rises 100 bps?

Cash interest is $23.75mm, so coverage is 2.1x. On unhedged floating debt, 100 bps adds $2.5mm and takes coverage to 1.9x. For scale, Federal Reserve staff put average coverage at 2.2x for private credit borrowers on 2025 issuance, against 3.7x for leveraged loan borrowers [1], and KBRA's Q1 2026 report on 2,481 sponsored borrowers put median coverage at 1.6x [2]; the samples differ.

Tests: Whether you carry the number to the covenant and the sponsor.

Common mistake: Stopping at the ratio without asking how much of the debt is hedged.

3. Interest coverage is 2.3x. Why is the lender still uncomfortable?

Because interest is not the only claim on cash. With EBITDA of $50mm, capex of $10mm, cash taxes of $6mm, cash interest of $22mm and scheduled amortization of $3mm, fixed charge coverage is ($50mm - $10mm - $6mm) / ($22mm + $3mm), or 1.4x, against 2.3x on interest alone. The business keeps $9mm after fixed charges, before working capital.

Tests: Whether you know which fixed charges the covenant counts.

Common mistake: Deducting all capex when the agreement deducts only unfinanced capex.

4. How does a coverage floor limit the size of the loan?

Debt capacity is EBITDA divided by the product of the floor and the cash rate. On $50mm of EBITDA, a 2.0x floor at 9.5% supports $263mm, or 5.3x. At 10.5% it supports $238mm, or 4.8x, so each 100 bps of rate removes about 0.5x of capacity.

Tests: Whether you size a loan from cash, not from a market multiple.

Common mistake: Quoting a leverage multiple without the rate that makes it work.

5. How does the equity cushion protect the loan?

Equity takes the first loss. Proskauer's review of its 2025 U.S. deals found average closing leverage of 5.1x and equity at 46% of capitalization [3]. Together they imply a value of about 9.4x EBITDA (5.1x / 0.54), so enterprise value can fall 46% before debt is impaired, and a 25% fall takes loan-to-value from 54% to 72%.

Tests: Whether you see equity as the layer that absorbs value loss first.

Common mistake: Treating loan-to-value at close as fixed.

From EBITDA to cash: the number that services the debt

6. Walk me from EBITDA to the cash available to service debt.

Start at $60mm of EBITDA. Deduct capex of $12mm, cash taxes of $7mm, working capital investment of $4mm and $2mm of cash restructuring costs: $35mm is available for debt service, a 58% conversion. Cash interest of $24mm leaves $11mm, and $3mm of scheduled amortization leaves $8mm of free cash flow after debt service.

Tests: Whether every deduction is cash.

Common mistake: Using book taxes, or forgetting cash costs that add-backs removed.

7. Adjusted EBITDA is $50mm and includes $12mm of add-backs. What leverage do you underwrite?

The proven number. On $225mm of debt, leverage is 4.5x on $50mm of adjusted EBITDA and 5.9x on the $38mm left without the add-backs. The add-backs are 24% of adjusted EBITDA here, close to the 23.2% Lincoln International reported for the private companies in its Q2 2026 index [4]. Accept what is realized and documented; haircut the rest.

Tests: Whether adjusted EBITDA is a fact to you or a negotiation.

Common mistake: Rejecting every add-back, including the one-off site closure.

8. A bolt-on is bought at 7.0x EBITDA with new debt. Does leverage rise or fall?

It rises when the multiple paid exceeds current leverage. A borrower with $200mm of debt on $40mm of EBITDA (5.0x) buys $10mm of EBITDA for $70mm: pro forma leverage is $270mm / $50mm, or 5.4x. Add $5mm of run-rate synergies and it prints 4.9x, so the lender asks who certifies them and over what period.

Tests: Whether you can see leverage rise when the headline says it falls.

Common mistake: Crediting synergies in full on day one, with no cap, deadline or certificate.

9. Revenue grows 20% at a 15% EBITDA margin. Why can free cash flow still fall?

Growth is funded in working capital before it is earned in EBITDA. Revenue rising from $200mm to $240mm, with working capital at 18% of revenue, absorbs $7.2mm, while the extra revenue adds only $6.0mm of EBITDA at a 15% margin. The first year of growth costs more cash than it makes.

Tests: Whether you follow growth onto the balance sheet.

Common mistake: Treating the plan's growth as free when the revolver funds it.

10. How do interest limits change cash taxes in a leveraged buyout?

U.S. federal law caps the deduction at 30% of adjusted taxable income plus business interest income, and for tax years beginning after 2024 that income again adds back depreciation and amortization [5]. With adjusted taxable income of $50mm the cap is $15mm, so $7mm of $22mm interest is disallowed: at an assumed 25% blended rate, $1.75mm of extra cash tax.

Tests: Whether your model runs on cash taxes.

Common mistake: Assuming interest always shields tax. Disallowed interest saves nothing today.

Covenants and headroom: the cushion is a share of EBITDA, not turns of leverage

11. A deal closes at 5.0x with a 30% cushion. Where is the covenant?

At 7.1x. A cushion is the fall in EBITDA the borrower can absorb, so the level is 5.0x / (1 - 0.30), or 7.14x. Adding 30% to the multiple gives 6.5x, and a covenant there leaves a cushion of only 23% (1 - 5.0x / 6.5x).

Tests: Whether you express headroom in EBITDA, the number that moves.

Common mistake: Adding the percentage to the multiple: here the cushions differ by seven points.

12. The covenant is 6.0x, debt is $300mm and EBITDA is $47mm. How large is the equity cure?

Leverage is 6.4x, a breach. If the cure counts as EBITDA, $3mm restores 6.0x ($300mm / $50mm). If it must repay debt, the sponsor needs $18mm, because debt has to fall to $282mm (6.0x × $47mm). The first costs a sixth of the second, so lenders limit the number of cures and ask where the cash goes.

Tests: Whether you know what a cure buys.

Common mistake: Calling every cure a positive. A $3mm cure leaves the debt unchanged.

13. Why do lenders limit the cash a borrower can net in a leverage test?

Because borrowing creates cash. A borrower with $250mm of debt, $20mm of cash and $50mm of EBITDA is at 4.6x net. It draws $30mm on the revolver and holds the cash: net leverage stays at 4.6x while gross leverage rises from 5.0x to 5.6x, and the cash can leave through a permitted payment.

Tests: Whether you spot a covenant met without the credit improving.

Common mistake: Reading the ratio, not the definitions behind it.

14. How much debt can the borrower add after closing without asking?

More than the closing multiple suggests. Proskauer found average closing leverage of 5.1x and average debt capacity of 6.3x across its 2025 U.S. deals [3]. On $50mm of EBITDA that is $255mm at close and room for $60mm more, often through a basket sized as the greater of a dollar amount and a share of EBITDA, so it grows when EBITDA is adjusted upward.

Tests: Whether you test what the document allows.

Common mistake: Underwriting the debt at close, not the debt the document permits.

15. What is a springing covenant, and who does it protect?

A financial test that applies only when the revolver is drawn above a set level. It protects the revolver lenders and leaves term lenders without their own maintenance test. Proskauer found that 21% of its 2025 U.S. deals were covenant-lite and that 91% of those had EBITDA above $50mm [3]: covenant-lite is mostly a large-borrower feature.

Tests: Whether you know who a test protects and when it applies.

Common mistake: Equating covenant-lite with no protection. Debt and payment baskets still do the work.

Amortization, maturity and sizing: how the loan is actually repaid

16. Amortization is 1% and there is a 50% excess cash flow sweep. What is leverage after year one?

On $250mm of term debt, take $35mm of cash available for debt service, $22mm of interest and $2.5mm of amortization: excess cash flow is $10.5mm, the sweep takes $5.25mm and debt falls to $242.25mm. On flat EBITDA of $50mm, leverage moves from 5.0x to 4.8x. Repayment removes about 0.15x; 5% EBITDA growth removes a further 0.2x.

Tests: Whether you can tie the annual sweep to the cash walk.

Common mistake: Applying the sweep to EBITDA instead of cash flow after interest and amortization.

17. Debt at maturity is $235mm and the market will refinance at 5.5x. What EBITDA does the borrower need?

$42.7mm ($235mm / 5.5x). Against $50mm at close, EBITDA can fall 14.5% and the loan still refinances at par. The median private credit loan issued in 2025 matures in five years [1], so the lender is underwriting both EBITDA and the market's multiple at a date it does not control.

Tests: Whether you test repayment at maturity.

Common mistake: Assuming a refinancing at the closing multiple. Maturity risk is multiple risk.

18. The borrower holds $12mm of cash, has $30mm undrawn on the revolver and burns $2mm a month. How long is the runway?

On paper 21 months: ($12mm + $30mm) / $2mm. If drawing more than $14mm would trip a covenant the borrower cannot meet, usable liquidity is $26mm and the runway is 13 months at most, since the borrower also needs minimum operating cash. The Financial Stability Board notes that borrowers frequently use PIK toggles as a substitute for revolving credit lines [6], so a PIK request signals a liquidity need.

Tests: Whether you size liquidity as usable, not nominal.

Common mistake: Counting the full revolver. Availability depends on the conditions to drawing.

19. Leverage is capped at 5.5x, coverage must stay above 2.0x and FCCR above 1.2x. Which constraint binds?

Test each on $50mm of EBITDA, a 9.5% cash rate, 1% amortization, capex of $8mm and taxes of $5mm.

Constraint	Test	Maximum debt	Multiple
Leverage cap	5.5x	$275mm	5.5x
Coverage floor	2.0x	$263mm	5.3x
Fixed charge floor	1.2x	$294mm	5.9x

Coverage binds first: $50mm / (2.0x × 9.5%) is $263mm. The fixed charge figure is ($50mm - $8mm - $5mm) / (1.2x × (9.5% + 1%)).

Tests: Whether you find the binding constraint instead of quoting a multiple.

Common mistake: Sizing on the leverage cap alone. In a cash-poor business coverage binds first.

Structure: who is paid, in what order and at what price

20. A $200mm unitranche on $40mm of EBITDA is priced at SOFR + 5.50%, and first-out holds $120mm at SOFR + 4.00%. What does last-out earn?

SOFR + 7.75% on $80mm. The borrower pays 5.50% on $200mm, or $11.0mm a year over SOFR. First-out takes 4.00% on $120mm, $4.8mm, and last-out the remaining $6.2mm.

Piece, slice of EBITDA	Amount	Spread	Annual spread income
First-out, 0.0x to 3.0x	$120mm	SOFR + 4.00%	$4.8mm
Last-out, 3.0x to 5.0x	$80mm	SOFR + 7.75%	$6.2mm
Unitranche, 0.0x to 5.0x	$200mm	SOFR + 5.50%	$11.0mm

Tests: Whether you ask which piece you hold before you ask about price.

Common mistake: Treating a unitranche as pari passu. The agreement among lenders decides who is paid first.

21. In distress the company is worth $192mm. The revolver ($25mm), first-out ($120mm) and last-out ($80mm) rank in that order. What does each recover?

Revolver and first-out recover par, and last-out recovers 59 cents. EBITDA of $32mm at a distressed 6.0x gives $192mm. After $25mm and $120mm, $47mm remains against $80mm of last-out, or 58.75%. Say which recovery measure you quote: a February 2024 Federal Reserve note put the value of a direct loan 30 days after default at around 33% [7].

Tests: Whether you run the waterfall in order and name the measure.

Common mistake: Quoting one recovery number without saying what it measures.

22. A second lien pays 450 bps more than a first lien. What default rate does that cover?

If a default leaves the first lien whole and the second lien at 50 cents, the premium covers an annual default rate of 9% (4.5% / 50%), before lost time and workout cost. The extra spread pays for the worse position in the waterfall. It is not extra return.

Tests: Whether you price a tranche by loss given default, not by headline yield.

Common mistake: Comparing spreads without comparing recovery.

23. A $100mm loan pays 8% cash and 4% PIK. What is the balance after three years, and when is PIK a warning?

$112.5mm ($100mm × 1.04^3), with no principal repaid. Lincoln defines bad PIK as an investment with no PIK interest at close but PIK interest today. It found bad PIK in 55.4% of PIK loans, or 6.2% of all loans, in Q2 2026, which it says may also be viewed as a shadow default rate [4]. Cash coverage flatters the credit: on $20mm of EBITDA it is 2.5x, against 1.7x on the full 12%.

Tests: Whether you separate planned PIK from PIK that replaces missing cash.

Common mistake: Computing coverage on cash interest only.

24. A loan is priced at SOFR + 5.00% with 2.0% OID and a 1.0% upfront fee. What is the yield?

On an assumed three-year life, the 3.0% of discount and fees adds 1.0% a year, for an effective margin of SOFR + 6.00%. With SOFR at an assumed 4.00%, the yield is about 10%. If the loan is repaid after one year, the same 3.0% is earned in one year, which is why lenders negotiate call protection.

Tests: Whether you know a loan's return is more than its coupon.

Common mistake: Quoting the spread as the yield, and ignoring early repayment.

Documentation: where value leaves without a breach

25. Which EBITDA adjustments would you cap, and by how much?

Cap cost savings and synergies as a share of EBITDA, limit the period in which the savings must be realized, and require an officer's certificate. With a cap of 25% of EBITDA before the add-back on $40mm of unadjusted EBITDA, add-backs reach $10mm and $200mm of debt prints 4.0x instead of 5.0x. Name the denominator: measured after the add-back, the same cap allows $13.3mm and 3.8x.

Tests: Whether you protect the covenant by controlling the definition.

Common mistake: Negotiating the covenant level and leaving the EBITDA definition open.

26. A builder basket grows with 50% of consolidated net income. How much can leave the company in three years?

With consolidated net income of $12mm, $13mm and $14mm, the basket reaches $19.5mm (50% of $39mm) with no leverage test, only a no-default condition. If a dividend of that size is funded with debt under a ratio basket, leverage on $50mm of EBITDA and $255mm of debt moves from 5.1x to 5.5x ($274.5mm / $50mm).

Tests: Whether you read baskets as value that can leave.

Common mistake: Reading only the financial covenant. Documents move value before the numbers do.

27. A borrower moves $100mm of assets to an unrestricted subsidiary and borrows against them. What happens to the lender?

Asset coverage falls without any breach. With enterprise value of $400mm and $250mm of first-lien debt, coverage is 1.6x. Once $100mm of value moves outside the collateral perimeter, the first lien has $300mm against $250mm, or 1.2x, and a new lender ranks first on the moved assets. J.Crew did this with its brand IP in 2016; blockers on material asset transfers and limits on unrestricted subsidiary designations are the protection.

Tests: Whether you know a document can fail without a breach.

Common mistake: Naming the risk without the mechanism: a designation and an investment basket large enough to fund it.

28. Why does a guarantor coverage test matter?

The lender has a direct claim only on the entities that guarantee the loan. If non-guarantor subsidiaries earn 20% of EBITDA, guarantor EBITDA is $40mm on $50mm consolidated, and leverage on the guarantor group is $250mm / $40mm, or 6.25x, against 5.0x consolidated. Lenders set a minimum share of EBITDA and assets in the guarantor group.

Tests: Whether you look at which entities are bound.

Common mistake: Using consolidated leverage when cash flow sits behind other creditors.

29. An incremental term loan is priced at SOFR + 6.25%. The existing loan pays SOFR + 5.50% with a 50 bps MFN. What happens?

The existing margin steps up to SOFR + 5.75%, which is 6.25% less the 50 bps cushion, assuming no OID or floor difference. On $200mm that is worth $0.5mm a year. Without an MFN the borrower could raise pari passu debt at a higher margin and leave the existing lender with the lower yield and a shared collateral pool.

Tests: Whether you protect yield as well as priority.

Common mistake: Treating the MFN as a yield guarantee. It can expire after a sunset period and exclude other loans, so read the carve-outs.

30. The loan has a 101 soft call for six months and the borrower can reprice 100 bps lower on $200mm. What does call protection cost?

The 101 premium costs 1% of $200mm, or $2.0mm, and the saving is 100 bps a year, also $2.0mm. The premium equals one year of benefit, so the borrower waits for the period to expire. Call protection is how the lender keeps part of the return it priced.

Tests: Whether you treat call protection as part of the loan's return.

Common mistake: Computing yield to maturity on a loan repaid in month seven.

How to use these questions

Drill the arithmetic until each number takes ten seconds, then rehearse the sentence that follows it: the number, what it means for repayment, and what the lender does about it. The Interview Guide carries 80 questions with model answers in 86 pages, plus three case studies.

For more depth, see leverage ratios, covenants, unitranche structures, PIK, recovery and documentation risk.

Sources and Method

All market figures are reported as of the date shown in the source and were last verified on 2026-10-09. Worked examples are illustrative.

[1] Ayelen Banegas, Sophia Castelo, Ahmet Degerli, Christine Dobridge, and Will Kennedy, "Private Credit and Leveraged Loan Markets: Similarities, Differences, and Substitution", FEDS Notes, Board of Governors of the Federal Reserve System, 11 August 2026. https://www.federalreserve.gov/econres/notes/feds-notes/private-credit-and-leveraged-loan-markets-similarities-differences-and-substitution-20260811.html [2] KBRA, "Private Credit: Q1 2026 Middle Market Compendium: Stability Despite March Madness", press release, 30 April 2026. https://www.kbra.com/publications/wdhymSND/kbra-releases-research-private-credit-q1-2026-middle-market-compendium-stability-despite-march-madness [3] Proskauer Rose LLP, "Proskauer Releases 15th Annual Private Credit Insights Report", press release, 9 February 2026. https://www.proskauer.com/insights/get-pdf/29617 [4] Lincoln International, "The Lincoln Private Market Index: Earnings Growth Drove a Q2 Rebound, While Private Markets Became More Selective", press release, 12 August 2026. https://www.lincolninternational.com/news/the-lincoln-private-market-index-earnings-growth-drove-a-q2-rebound-while-private-markets-became-more-selective/ [5] Internal Revenue Service, "Instructions for Form 8990: Limitation on Business Interest Expense Under Section 163(j)", revised December 2025 (page last reviewed or updated 30 April 2026). https://www.irs.gov/instructions/i8990 [6] Financial Stability Board, "Report on Vulnerabilities in Private Credit", 6 May 2026. https://www.fsb.org/uploads/P060526.pdf [7] Fang Cai and Sharjil Haque, "Private Credit: Characteristics and Risks", FEDS Notes, Board of Governors of the Federal Reserve System, 23 February 2024. https://www.federalreserve.gov/econres/notes/feds-notes/private-credit-characteristics-and-risks-20240223.html