Credit case study preparation
A private credit underwriting test asks whether you can turn incomplete company information into a disciplined lending recommendation. The model matters, but the decision depends on the quality of earnings, cash conversion, liquidity, structure, documentation, and recovery.
Most tests provide a lender presentation, financial statements, transaction assumptions, or a short data room. Your task is to identify what deserves confidence, what needs adjustment, and what terms would compensate for or control the risk.
Separate recurring earnings from aggressive add-backs, unrealized synergies, temporary savings, owner expenses, and acquisition adjustments.
Bridge EBITDA to free cash flow after taxes, working capital, maintenance capital expenditure, cash interest, leases, and other required payments.
Determine revolver needs, funded debt, amortization, maturity, pricing, call protection, covenant levels, and equity contribution.
Summarize the business, transaction, strengths, risks, mitigants, downside, recovery, structure, and final recommendation in a format an investment committee can audit.
Core questions
Question 1
Use historical and projected income statements, a cash-flow bridge, debt schedule, leverage and coverage calculations, liquidity, base and downside cases, and a recovery analysis. Keep assumptions visible and separate management inputs from your adjustments.
Question 2
Stress the variables most connected to the business risk: volume, pricing, churn, margin, working capital, capital expenditure, or concentration loss. Do not apply an arbitrary percentage decline to every line. The downside should describe a plausible operating event and its liquidity consequences.
Question 3
Start with the risk you need to monitor and the point at which lender intervention remains useful. Set definitions, testing frequency, headroom, step-downs, cure rights, baskets, and reporting requirements that match the operating case and transaction structure.
Question 4
Use a stressed enterprise-value multiple, asset realization, or liquidation framework appropriate to the business. Deduct restructuring costs and apply the capital-structure waterfall, including revolver priority, secured claims, guarantees, and other liabilities.
Question 5
State invest or decline, proposed commitment, pricing, structure, key conditions, principal risks, mitigants, downside outcome, and the two or three facts that would change your decision. The recommendation should follow from the analysis rather than repeat it.
Identify the transaction rationale, borrower quality, key adjustments, liquidity needs, and information gaps before opening the model.
Normalize historical results, make assumptions explicit, and ensure cash flow connects to the debt schedule.
Run the operating downside, test liquidity and covenant headroom, estimate recovery, and propose lender protections.
Lead with the decision, then support it with concise business, financial, structural, and downside evidence.
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