Repayment Capacity, Credit Spreads, and Recovery

1.A distributor has $80 million of unrestricted cash but needs $25 million to operate. It expects $30 million of cash generation before a $110 million debt maturity. What is the funding gap if there are no other sources?

2.An issuer has a $100 million committed revolver, $35 million drawn and $10 million of letters of credit that reduce capacity. All conditions to draw are met. How much additional cash can it draw?

3.A borrower expects a $70 million note to mature in nine months. Its only planned funding source is a proposed asset sale with no signed buyer. How should the base liquidity review handle that source?

4.A firm has $480 million of gross debt, $60 million of unrestricted excess cash, and $105 million of EBITDA. What is net leverage using these definitions?

5.A manufacturer has $76 million of adjusted EBITDA and pays $19 million of annual cash interest. What is EBITDA-to-cash-interest coverage?

6.A business expects $60 million of operating cash flow after cash interest and taxes. It needs $22 million of maintenance capex, and $45 million of principal is due. What shortfall remains before other funding?

7.A company has $200 million of unhedged floating-rate debt. Benchmark rates rise 150 basis points and contractual margins remain unchanged. What is the annualized increase in interest expense?

8.A debt schedule shows that $100 million must be refinanced from 4% to 8% at the same principal. How does annual interest change once the replacement debt is outstanding for a full year?

9.A profitable wholesaler pays suppliers in 30 days while customers increasingly pay in 75 days. What could weaken repayment capacity even if margins hold?

10.A borrower counts its entire reported cash balance against parent-level notes. Half is in a joint venture that requires partner approval to distribute funds. What should the analyst verify?

11.An issuer has ample cash at year-end but uses most of it to buy seasonal inventory each spring. Which forecast best tests its liquidity?

12.A leverage covenant caps net debt to covenant EBITDA at 5.0×. Net debt is $360 million and covenant EBITDA is $80 million. What is the minimum EBITDA that keeps leverage at or below the cap if net debt is unchanged?

13.An issuer presents adjusted EBITDA with add-backs for savings from an unstarted plant closure. What should the analyst do for near-term debt service analysis?

14.A credit model uses the same amount for gross debt and net debt even though the issuer has substantial cash. What fact could justify the treatment?

15.A borrower finances a large share of working capital with supplier finance. The arrangement can be withdrawn at short notice. What should a liquidity stress test include?

16.A revolving credit agreement becomes unavailable if the borrower breaches a specified draw condition. Forecast leverage exceeds that condition before the next maturity. How should available liquidity be modeled in that scenario?

17.A bond has a bullet maturity. The issuer covers annual interest comfortably but has little cash at maturity. What is the unresolved risk?

18.Two companies have 4× net leverage. One has long contracts with steady cash receipts, while the other sells a cyclical commodity. What comparison best differentiates repayment capacity?

19.A telecom operator can meet next year's debt service only by cutting capex below what it needs to maintain service. What should the forecast distinguish?

20.A firm reports $95 million of operating cash flow, including a $25 million benefit from stretching payables. Cash capex is $30 million. What is cash flow after capex excluding the payables benefit?

21.An exporter earns most revenue in pesos but owes debt service in dollars. It has no FX hedge. What should the downside forecast test?

22.A business forecasts a $50 million dividend before a large bond maturity, even though the dividend can be suspended. What scenario helps assess financial flexibility?

23.An issuer sells a profitable division and uses the proceeds to repay debt. What is needed to assess the effect on leverage?

24.A company expects to repay a maturity with a new secured loan. Most assets are already pledged. What should the analyst check?

25.A business posts a strong interest coverage ratio because much of its interest is paid in kind. What risk does this ratio alone miss?

26.A bond covenant tests leverage only when the issuer takes on new debt. Leverage rises above the threshold after earnings decline, but the issuer incurs no debt. What follows under this covenant alone?

27.A borrower has $32 million of cash, a $12 million minimum cash buffer, and a $5 million monthly cash burn. Ignoring debt payments and new funding, how long until it reaches the buffer?

28.A firm improves annual operating profit by $20 million, but cash interest rises by $12 million and maintenance capex by $15 million. Assume profit translates to cash before those two items and other cash flows are unchanged. How does cash available for principal change?

29.A credit review assumes a supplier's largest customer renews next year. Which early warning directly tests that assumption?

30.A maturity table has no repayments for two years, then a large cluster in year three. What should the review show?

31.A firm has positive EBITDA but negative operating cash flow for three years. The weakness comes from slow collections and stock accumulation. What question matters most for repayment?

32.An issuer owns valuable real estate but cannot sell it quickly without disrupting its operations. How should those assets enter a six-month maturity plan?

33.Management forecasts a $25 million working capital release in a recession. Which check is most useful?

34.A borrower has investment-grade ratings but depends on one bank for its next refinancing. What should the analyst conclude?

35.A credit memo says an issuer can refinance because a comparable peer just issued bonds. What evidence would strengthen the claim?

36.A business has $40 million of usable cash, expects $15 million in pre-debt-service cash flow, and owes $12 million of interest and $65 million of principal in the next year. Which summary is accurate?

37.A corporate bond yields 6.80% and a comparable government benchmark yields 4.20%. What is the simple yield spread?

38.A corporate bond's yield rises 25 bp while its benchmark yield rises 40 bp. How did its yield spread change?

39.At a fixed benchmark yield, a long bond with spread duration of 4.2 experiences a 75 bp spread widening. What is the approximate price change, ignoring convexity and carry?

40.One-year default probability is 3% and loss given default is 60% of face value. What is expected default loss over that year as a percentage of face, ignoring timing and discounting?

41.Under a simplified one-year model, a bond at par earns 280 bp of spread carry, expected default loss is 160 bp, and expected trading costs are 40 bp. Ignoring other effects, what is the residual expected excess return?

42.In a simplified one-year break-even calculation, 300 bp of spread is entirely assigned to expected default loss and recovery is 40% of face. What default probability breaks even?

43.Why should you avoid interpreting the entire quoted bond spread as expected default loss?

44.A callable bond has a higher yield spread than comparable noncallable debt. Which measure helps isolate compensation after accounting for the embedded call?

45.An issuer's three-year note spreads 180 bp and its eight-year note spreads 220 bp. What should you check before calling the longer note cheap?

46.Two senior bonds have the same OAS. Bond A has spread duration 3 and Bond B has spread duration 7. Which loses more in percentage terms for the same small spread widening?

47.A bond has spread DV01 of $1,600. Spreads tighten 30 bp with the benchmark yield unchanged. What is the approximate profit for a long position?

48.A sector index widens 60 bp while the issuer's comparable bond widens 65 bp. What does the relative move establish by itself?

49.A bond with a high quoted spread last traded three weeks ago. What should you obtain before claiming it is cheap enough to buy?

50.A candidate compares a senior secured bond at 230 bp with an unsecured bond from the same issuer at 330 bp. What is the relevant trade-off?

51.Two equally liquid bonds have the same maturity and spread. Issuer A has lower estimated expected loss, but is exposed to a concentrated binary event. What else should a comparison show?

52.A bond spreads 350 bp. Your conservative required spread is 400 bp based on expected loss, liquidity, and risk premium. With no change in assumptions, what is your view?

53.A bond and its peer are both quoted at 250 bp, but the issuer under review may need expensive near-term refinancing. Which change would most directly improve the relative-value case?

54.A bond offers one-year spread carry of 300 bp. Over the year, spread is expected to widen 100 bp and spread duration is 3.5. Ignoring roll, default, benchmark moves, and costs, what is approximate excess return?

55.Under an unchanged upward-sloping credit curve, a bond's spread falls as its remaining maturity shortens. What does this illustrate?

56.A bond trades at 70 cents on the dollar with a high quoted yield to maturity. Why can that yield mislead a distressed-credit investor?

57.One of two bonds trading at the same spread is eligible for an index and trades frequently. The other trades rarely in small clips. What should relative value account for?

58.The issuer's debt spreads have tightened after a large fund buys the bonds, while leverage and cash flow are unchanged. What should the analyst update first?

59.An analyst compares a euro bond and a dollar bond from the same issuer for a dollar investor who hedges FX. What comparison is most relevant?

60.A callable bond can be redeemed at 101 in a year and otherwise matures in five years at par. Why should you check yield to worst when buying above par?

61.A firm issues a bond at a wider spread than its outstanding comparable debt. What should you verify before treating the difference as a new-issue concession?

62.A short-dated bond spreads 600 bp while a longer bond from the same borrower spreads 420 bp. The borrower has a major refinancing in six months. Which explanation deserves testing?

63.A bond's spread widens by 45 bp, but a new risk review raises required compensation by 70 bp. How does the margin between quoted and required spread change?

64.Credit spreads widen across an industry after a downgrade of one major issuer. What evidence would distinguish a broad repricing from borrower-specific deterioration?

65.A bond's estimated default probability is unchanged, but more senior borrowing reduces expected recovery on the bond. How should required spread generally respond, all else equal?

66.A rate-hedged credit position outperforms despite a decline in the corporate bond's absolute price. What could explain both outcomes?

67.A bank loan pays a floating coupon over a benchmark and trades below par. Which comparison addresses both coupon margin and purchase price?

68.An analyst subtracts a five-year cumulative expected default loss of 6% directly from a 250 bp annual spread. What is wrong with the comparison?

69.An issuer's spread offers a 70 bp premium to peers. Expected annual default loss is 30 bp higher and liquidity costs are estimated to be 25 bp higher on the same basis. What incremental compensation remains in this simplified comparison?

70.A credit idea targets a 40 bp spread tightening over six months. Spread duration is 5. What is the approximate price gain from tightening alone?

71.Two new bonds have similar expected excess returns. One can underperform severely if the issuer loses market access. What evidence would support choosing it despite that risk?

72.A four-year bond spreads 290 bp. Your model assigns 160 bp to annualized expected loss, 45 bp to illiquidity, and requires 100 bp for remaining risk. Which conclusion fits those assumptions?

73.A simplified waterfall has $220 million available after costs, $140 million of first-priority claims, and $160 million of junior claims. What is junior recovery if there are no other claims?

74.Two unsecured bonds rank equally and share the same $60 million pool pro rata. Their face amounts are $50 million and $100 million. What does the smaller bond issue receive?

75.A lender has an $80 million secured claim against collateral worth $55 million net. Under the stated terms, the $25 million deficiency shares in a separate unsecured pool that pays 20%. What is total recovery in dollars?

76.A business at default is estimated to earn $45 million of sustainable EBITDA. Apply a 5× going-concern multiple and subtract $15 million of costs that rank ahead of debt. How much value is available to debt under this estimate?

77.A creditor compares net liquidation proceeds of $85 million with a net going-concern value of $130 million. What must be assessed before using the higher number?

78.A parent has unsecured notes and its only material asset is equity in an operating subsidiary. The subsidiary does not guarantee the notes. The parent's only claim on the subsidiary is its equity interest. What makes the parent notes structurally weaker?

79.A parent bond has a guarantee from one of three subsidiaries. The others hold most of the group's valuable assets and provide no guarantee. What matters for recovery?

80.A secured issue is backed by machinery recorded at $100 million. A forced sale is estimated at $62 million before $7 million of selling costs. What is net collateral value under those assumptions?

81.A bond trades at 64 cents per dollar of face and pays 40 cents in an immediate default scenario. Ignoring coupons, fees, and time value, what is the loss as a percentage of purchase price?

82.A creditor receives 60 cents per dollar of face two years after default. At a 10% annual discount rate, what is its present value at default, ignoring other cash flows?

83.A restructuring offers 30 cents in cash and new debt with 40 cents of face value per dollar of old face. The new debt trades at 75% of its face. What is total market-value recovery per dollar of old face?

84.A plan pays junior creditors partly in equity. What should an analyst show when explaining recovery?

85.A company's $150 million second-lien bond is behind $200 million of first-lien claims on the same collateral. Net collateral value is $270 million and the second lien receives nothing elsewhere. What is its recovery?

86.A downturn lowers both default-scenario EBITDA and the appropriate valuation multiple. Why run a scenario with both lower together?

87.A modeled downside leaves $90 million for $120 million of secured debt. New rescue financing adds $15 million of claims ahead of that debt and adds no distributable value in this sensitivity. What is secured recovery after the change?

88.A capital structure includes first-lien debt, unsecured debt, and equity. Net value available to the first lien is less than the first-lien balance, and there are no separate pools or negotiated transfers. What is equity recovery under this waterfall?

89.A forecast assumes all receivables recover at face value even though several customers dispute their invoices. Which refinement is most relevant?

90.A lender has a lien on specific receivables. The issuer also owns valuable unpledged real estate. What should the recovery model do?

91.A company could draw the rest of its first-priority revolver shortly before default. Why test that draw in a junior recovery model?

92.A business has $100 million of unsecured bonds. New equal-ranking unsecured claims of $50 million are allowed. The pool available to those claims stays $60 million. How does recovery on each dollar of the original bonds change?

93.A debt exchange offers holders 80 cents of new debt face for each dollar of old face. The new debt has a lower coupon and longer maturity. Why should recovery be measured beyond the face haircut?

94.A company's downside plan assumes a key license can be sold with its facilities. The license may require separate approval to transfer. What should the recovery range show?

95.A bond's expected default probability falls from 8% to 5%, but expected recovery falls from 60% to 30% of face. How does simplified expected loss change?

96.An analyst estimates $180 million of distributable value and $120 million of prior claims ahead of a $100 million bond. What change alone would reduce that bond's modeled recovery from 60% to 45%?

97.A long-credit thesis relies on refinancing by June. Management says discussions continue, but there is no signed commitment and the cash buffer runs out in July. What would materially improve the downside assessment?

98.A stressed company can suspend its dividend, but its base case assumes the payout continues. Its restructuring model assumes the company will also pay the dividend after missing debt service. What should the downside model check?

99.A holding company plans to move assets to a subsidiary outside a bond's guarantee group. What should the bondholder analyze first?

100.A recovery memo states that secured debt always recovers 100%. Which correction is most precise?

101.A base case values a stressed business at 6× $50 million of EBITDA. The downside uses 4× $35 million. What is the drop in going-concern value before claims and costs?

102.A lender estimates 45% to 65% recovery for an unsecured note. An investment committee asks what drives the range. Which answer is most informative?

103.A debt holder can exit now at 52 cents or receive an uncertain future restructuring distribution. What is the relevant decision comparison?

104.The issuer may sell pledged inventory in distress. The model adds its full inventory liquidation value to a going-concern valuation that already requires that stock. What is the issue?

105.A junior recovery estimate assumes a $20 million restructuring fee is paid after all debt. A new model pays the fee first from a $100 million pool, then $65 million of senior debt. What remains for junior debt?

106.A borrower faces a liquidity crisis despite estimated going-concern value above total debt. What distinction should the credit memo make?

107.A portfolio manager asks for a downside explanation on a 78-cent bond. In your downside it pays 50 cents after one year, with no coupon and ignoring discounting or costs. What should you report?

108.A note offers 420 bp but requires refinancing in nine months. Your stress case shows a funding gap and 35% note recovery if the deal fails. Which investment summary communicates the trade-off best?