Restructuring Interview Questions (RX & distressed)

Model answer

It is a US reorganization process where a distressed company keeps operating as a debtor-in-possession while it restructures its balance sheet under court protection. An automatic stay halts creditor collection, and the company negotiates a plan of reorganization that creditors vote on by class and the court confirms. The goal is a viable, deleveraged company rather than liquidation.

Model answer

The mix of debt, equity and hybrids that finances a company. It matters because it drives the cost of capital, financial risk, the tax shield from interest, and the returns to equity. The optimal structure balances the tax benefit of debt against the costs of financial distress.

Model answer

The reorganized enterprise value determines where the fulcrum sits and therefore each class's recovery, so every party argues its preferred valuation: senior creditors low-ball it to claim more of the equity, while junior creditors and equity argue it high to get recovery. The negotiated or court-determined value allocates value across the capital structure.

Model answer

Senior secured debt such as a revolver and term loans, then senior unsecured notes, then subordinated or junior debt, then mezzanine or PIK, then preferred equity, and finally common equity. Seniority determines payment priority and recovery in distress, and junior claims bear more risk for a higher return.