Debt Capacity Assessment

This problem practices the logic behind debt capacity analysis in a leveraged buyout, which is a core skill in private equity and investment banking interviews. A strong answer should walk through how bankers think about industry risk, competitive position, historical cash flow stability, and downside case modeling, then explain how those factors shape the amount of debt lenders may be willing to provide and the level of financial cushion the company needs to remain solvent under stress.

Interviewers ask this because debt capacity is central to structuring an LBO and judging whether a transaction is realistic. They want to see that candidates understand both the business side, such as cyclicality, disruption, and customer switching risk, and the credit side, such as cash flow resilience, leverage, and interest coverage under adverse scenarios.