Restructuring Interview Questions: 20 You Must Know

The fastest rejection I've heard about in restructuring recruiting took about four minutes. The student, call him P, told me the story himself when he came to WSG afterward: he'd opened his first round with flawless three-statement mechanics, then got asked why RX (restructuring) lives at boutiques instead of at Goldman, and had nothing. The interview stayed friendly, but it was over.

I'm Stephen Turban, founder of WSG. Restructuring interviews filter on three things: standard accounting and valuation, RX-specific technicals, and whether you actually understand why this business exists. Most candidates prepare for the first, skim the second, and never touch the third. The third is what gets people cut at PJT, Evercore, Houlihan Lokey, Lazard, and Moelis, even after perfect technical rounds.

These are the 20 restructuring interview questions that matter, grouped the way the interview actually flows, drawn from the WSG restructuring guide and the debriefs of students I've coached into RX seats. P's question is number two.

What do restructuring interviews actually test?

Three layers. The M&A-grade foundation: three statements, DCF, valuation. The RX layer: waterfalls, capital structures, Chapter 11 mechanics, and liability management. And the context layer: why RX lives at elite boutiques, what's happening in the distressed market right now, and whether you have a view. Interviewers can tell within two minutes whether you've thought about restructuring as a system or just memorized definitions.

How technical do RX interviews get compared to M&A?

The accounting bar is the same but pushed harder, and the RX layer sits on top. The signature RX test is a recovery waterfall done out loud: given a capital structure and an enterprise value, where does value break and what does each class recover. If you can do that on a whiteboard in three minutes, you've cleared the technical bar at most Tier 1 shops.

The fit and context questions

1. Why restructuring instead of M&A?

The winning answer names the structural fact instead of reciting "distressed credit is intellectually interesting." RX is the most meritocratic product in banking: mandates are won on the MD's proposed solution, not the firm's logo, and the analysis actually decides outcomes. Pair that with a real situation you've followed and you've separated from 80 percent of the room.

2. Why does restructuring live at elite boutiques instead of bulge brackets?

The answer is conflicts, and a clean two-sentence explanation is all this question needs. Bulge brackets underwrite and syndicate the debt and publish research on the borrower; when that borrower needs to restructure, creditors won't accept advice from a conflicted bank. So distressed companies hire independent advisors, and the RX league tables belong to PJT, Evercore, Houlihan Lokey, Lazard, and Moelis.

3. Which RX shops would you rank at the top, and how do they differ?

Know the major RX firms and have one clear fact for each. Saying “they’re all prestigious” tells the interviewer you haven’t done your homework.

• PJT: Known for high-profile restructuring work, especially on the debtor side.

• Evercore: Strong on both debtor and creditor assignments, with a broad restructuring practice.

• Houlihan Lokey: The largest restructuring practice by volume, with especially deep creditor-side experience.

• Lazard: A major global restructuring franchise with a particularly strong international presence.

• Moelis: Strong across restructuring and broader capital-structure advisory.

You don’t need a five-minute history lesson on each firm. Know what each is known for, pick a favorite, and be ready to explain why.

4. Tell me about a distressed situation you've been following.

Have one 2025-26 situation prepared with a view on who won. The Marelli Chapter 11, where KKR effectively lost control of a multi-billion-dollar portfolio company. First Brands, the auto-parts filing that rattled credit desks in September 2025. Spirit Airlines' second trip through Chapter 11. Or the Quest Software uptier exchange. Read the docket on PACER or the Pari Passu newsletter writeup and decide whether the debtor or the creditors came out ahead.

The accounting and valuation questions

5. Walk me through the three statements when a company writes down $100 of inventory.

RX interviews reuse the standard M&A accounting questions with a distressed twist, and the write-down walk is the most common. Take it one statement at a time. On the income statement, the $100 write-down is an expense, so pre-tax income falls by $100 and net income falls by $100 times one minus the tax rate; at a 25 percent rate, net income is down $75.

On the cash flow statement, you start with net income down $75, then add the $100 back because a write-down is non-cash. Net effect: cash is actually up $25, which is the tax savings. On the balance sheet, inventory falls $100, cash rises $25, and retained earnings absorb the $75 loss, so both sides tie. Practice saying it in exactly that order until the whole walk takes under a minute.

6. How does valuing a distressed company differ from valuing a healthy one?

Every standard valuation method has a problem in distress, and the interviewer wants to see that you know where each one breaks. A DCF built on management projections is shaky when the business is mid-decline, and trading comps distort when the company's own capital structure is broken, because the stock is trading like a lottery ticket instead of a claim on earnings.

So RX work leans on post-reorganization valuation, and the logic runs in three steps. First, estimate what the business can earn once it's fixed, usually a normalized EBITDA a year or two out. Second, apply a multiple from healthy peers to get an enterprise value. Third, run that value through the debt stack to see what each class recovers. Liquidation value sits underneath the whole exercise as the floor, because every creditor compares any plan against what they'd get if the company were simply sold for parts.

7. Why does the market value of debt matter more than face value in RX?

TFace value tells you how much the company owes. Market value tells you what that debt is worth today.. In a restructuring, that distinction matters because a bond trading at 60 cents on the dollar is telling you the market expects creditors to recover something around that level, adjusted for timing and risk.It also sets the economics for everyone at the table, because a fund's return is measured from what it paid, not from par. When restructuring bankers talk about where the debt is trading, they're really talking about what the market expects the outcome to be.

Easy way to remember it: face value is what you're owed; market value is what it's worth today.

8. A company's bonds trade at 40. What does that tell you?

A price of 40 tells you three things at once: the market expects roughly a 40 percent recovery on this class, the value likely breaks at or above this layer, and the original lenders have mostly sold out to distressed funds. The funds that bought at 40 will negotiate like future owners of the company, because at that price they might be. Walking through all three reads from one number is exactly the kind of answer RX interviewers remember.

The restructuring technicals

9. Walk me through a recovery waterfall.

This is the signature RX question, and reps make it automatic. Here's the drill with real numbers: $1.2 billion of senior secured debt, $400 million of senior unsecured, $200 million of equity, and an enterprise value of $1.0 billion.

Work from the top. The senior secured lenders are owed $1.2 billion, but only $1.0 billion of value exists, so they recover about 83 cents on the dollar and everyone below them gets nothing. The value runs out inside the senior secured class, so that's where it "breaks."

Now rerun it at $1.4 billion of enterprise value. The senior secured is paid in full, $200 million is left over for the $400 million of unsecured, so they recover 50 cents, and equity still gets nothing. Same structure, two different answers, and every waterfall question you'll ever get is a version of this with the numbers changed.

10. What is the fulcrum security?

The fulcrum security is the class where the value runs out: the one that gets partially paid and is first in line to receive equity in the reorganized company. In the $1.4 billion version of the waterfall above, that's the senior unsecured. Distressed investors hunt the fulcrum because buying it at the right price is how you end up owning the company on the other side of the restructuring.

If the interviewer pushes further, the follow-up is usually how the fulcrum moves. Raise the enterprise value and it slides down the stack toward equity. Lower it and it climbs up toward the secured debt.

11. Out-of-court versus in-court: what's the real difference?

Out-of-court binds only the creditors who sign; Chapter 11 binds the dissenters too, and the choice usually comes down to how many holdouts you need to force along. Out-of-court is faster, cheaper, and private, but a handful of holdouts can block the deal or demand better terms, because nothing forces them in.

Chapter 11 costs more and plays out in public, but it comes with tools you can't get anywhere else. The automatic stay stops lawsuits and collections the day the company files. A plan can bind an entire class once enough of the class votes for it. Assets can be sold free and clear, and the company can raise new money through DIP financing. The practical answer: companies stay out of court when the creditor group is small and cooperative, and file when it isn't.

12. What is a liability management exercise?

A liability management exercise is an out-of-court restructuring done inside the loopholes of a company's own credit documents. Three versions cover most of what you'll be asked. An uptier exchange: participating lenders swap into new debt that ranks ahead of the lenders who stayed out. A drop-down: the company moves assets into a subsidiary outside the lenders' collateral and borrows against them there. A maturity extension: lenders push the due date out in exchange for better pricing or terms.

The 2026 twist worth knowing: many LMEs from the past few years bought time without fixing the business, and those companies are now filing anyway, which has made failed LMEs their own category of restructuring work. In simple terms, an LME is a restructuring done before a company officially defaults or files for bankruptcy. The company and its advisors negotiate with creditors to change the debt terms and buy the company more time.

The lesson is important for RX interviews: an LME can extend maturities or improve the capital structure, but it does not automatically fix weak operations. When the business continues to deteriorate, the company may eventually need a full restructuring or Chapter 11. Recent research found that many coercive LMEs ultimately resulted in another default or bankruptcy, while 2026 market commentary has highlighted the same “kick the can down the road” dynamic.

13. What is DIP financing and why do lenders compete to provide it?

DIP financing is senior, well-priced, fee-rich, and comes with control of the case timeline, which is why lenders compete to provide it. Debtor-in-possession financing is the loan that funds a company while it's in Chapter 11. The court can grant it superpriority, meaning it gets repaid before almost everything else, and can even allow it to prime existing liens, jumping ahead of lenders who were there first.

That's the whole appeal for the lender: strong protection, high pricing, real fees, and control. DIP agreements come with milestones, deadlines the company has to hit, and those deadlines end up setting the pace of the entire case.

14. What is a 363 sale?

A 363 sale is an asset sale run through the bankruptcy court, named for the section of the code that allows it. The buyer takes the assets free and clear of existing claims, which is the feature that makes buyers comfortable purchasing from a bankrupt seller.

The process usually starts with a stalking-horse bidder, a buyer who signs a deal first and sets the floor price in exchange for a breakup fee, followed by a court-supervised auction where anyone can top the bid. For RX bankers it means running what is essentially an M&A sell-side process inside a bankruptcy, on a faster clock and with a judge watching.

15. What is the absolute priority rule, and does it ever bend?

Absolute priority is the rule at plan confirmation and a negotiating position everywhere else, and strong candidates explain both halves. The rule itself: senior classes must be paid in full before junior classes receive anything, and at confirmation a court can enforce that over a junior class's objection, which is what cramdown means.

In practice, deals bend it all the time. Senior creditors sometimes hand a small recovery down the stack to buy votes and avoid a fight, and old equity occasionally walks away with warrants in exchange for supporting a fast, consensual process. Knowing the rule gets you a pass. Knowing when and why it bends is what sounds like a practitioner.

16. How would you model an out-of-court restructuring?

Start with a normal operating model: revenue, EBITDA, cash flow, and a debt schedule. Then build a toggle for each proposed transaction, an exchange, a drop-down, an extension, so you can switch each one on and watch what changes. The output that matters isn't a valuation; it's whether the company stays solvent and covenant-compliant long enough for the fix to work.

In practice you're tracking two lines across the projection: liquidity, meaning does the company run out of cash, and leverage, meaning does it stay inside its covenants. If a proposed deal buys two years of runway, the model should show exactly where those two years come from.

The judgment questions

17. What happens to existing shareholders in Chapter 11?

Existing equity is usually wiped out or diluted to a sliver in Chapter 11, and the reorganized company belongs to the fulcrum creditors. The nuance worth adding: out-of-the-money equity still has option value and negotiating leverage, which is why confirmed plans sometimes hand old shareholders warrants to avoid a fight.

18. Debtor side versus creditor side: how does the work differ?

Debtor-side means running the whole process for the company: liquidity, negotiations with every class, the plan itself. Creditor-side means representing a class, often an ad hoc group, maximizing its recovery, frequently across the table from a debtor advisor. Houlihan built the deepest creditor franchise; PJT and Lazard skew debtor. Say which you'd pick and why, and expect pushback either way.

19. Who else is at the table in a restructuring?

Law firms driving the legal strategy, turnaround advisors like FTI Consulting and Alvarez & Marsal inside the company on cash and operations, the banks on each side, and the distressed funds who bought into the stack. Interviewers ask this to check you understand a restructuring is a negotiation among many parties, not a valuation exercise done in a vacuum.

20. What's happening in the restructuring market right now?

Have three current observations ready : elevated filing activity concentrated in over-levered sponsor-backed companies, the busted-LME pipeline converting into Chapter 11 mandates, and private credit lenders working out their own deals for the first time at scale. A candidate tracking those themes reads the trade press because they want to, and that's who gets hired.

Say this, don't say that

Why restructuring?

Don't say: "Distressed situations are fascinating and I want to learn about Chapter 11."

Say: "RX is the one product where the advisor's analysis decides the outcome. A company in distress picks its bank on the solution in the pitch, not the logo, and I want to train somewhere the work itself is the differentiator. I've been following a live Chapter 11 this year, and watching the advisors shape who ends up owning the company is what sold me."

The prep stack

Start with Distressed Debt Analysis by Stephen Moyer. It's the standard text in the field, and the first six chapters cover most of what interviews actually test. From there, A Pragmatist's Guide to Leveraged Finance by Robert Kricheff explains how leveraged credit works in practice, and The Credit Investor's Handbook by Michael Gatto gives you the most current view from the fund side.

Then put the books down and do waterfall reps. Build them from real capital structures, rerun them at different enterprise values, and say the answers out loud. Reading builds the vocabulary, reps build the speed, and the interview tests the speed. The preparation that wins is repetition, not more reading.