Houlihan Lokey Interview Questions 2027: Debt Waterfall & How to Answer

Answer Houlihan Lokey restructuring interview questions on the debt waterfall in steps: (1) compute enterprise value as EBITDA × multiple; (2) allocate value down the seniority ladder — revolver first, then secured debt, then unsecured; (3) each class recovers in full before the next gets anything; (4) express each recovery as a percentage of its claim. This restructuring core is commonly reported by candidates.

What These Houlihan Lokey Restructuring Interview Questions Assess

This question is commonly reported by candidates interviewing at Houlihan Lokey for 2027 roles. It assesses the central mechanics of distressed valuation: interviewers want strict seniority ordering, correct recovery math, and the intuition that junior classes absorb losses first.

How to Answer Houlihan Lokey Restructuring Interview Questions Like This

Interviewers score technical questions on your process, not just the final answer. State your assumptions first, work through the steps out loud in order, and sanity-check your conclusion at the end.

• Step 1: Enterprise value = EBITDA × the given multiple — state this starting point explicitly.
• Step 2: Pay the revolver first (most senior), then secured debt, then unsecured debt — strict absolute priority.
• Step 3: Each class is paid in full before the next receives anything; shortfalls cascade downward.
• Step 4: Recovery % = value allocated to the class ÷ its total claim; equity gets the residual, often zero.
• Add the intuition: the waterfall shows who bears losses — junior capital first — which is why seniority determines pricing of distressed debt.

Example line: "I'd multiply EBITDA by the multiple for enterprise value, then allocate top-down: revolver first until fully repaid, then secured debt, then unsecured — each in full before the next class sees a dollar. Recovery for each class is its allocated value divided by its claim, with equity taking whatever — if anything — remains."

Common Mistakes in Houlihan Lokey Restructuring Interview Questions Answers

• Paying classes pro-rata instead of by seniority.
• Forgetting the revolver sits at the top of the stack.
• Computing recoveries without first establishing enterprise value.

The waterfall is the single most-tested restructuring mechanic — getting seniority wrong here ends the round. Practice the allocation until it's reflexive.

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FAQ

What happens if enterprise value doesn't cover all debt?

Junior classes take losses first; unsecured may recover cents on the dollar and equity is typically wiped out.

Where do trade claims and leases sit?

It varies by jurisdiction and structure — acknowledge that real waterfalls have more layers, but the given stack follows absolute priority.

Does the multiple choice matter a lot?

Enormously — enterprise value is the pool being divided, so sensitivity on the multiple swings every recovery percentage.

What is absolute priority?

The principle that senior claims are paid in full before junior claims receive anything — the waterfall's governing rule.

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