Credit and restructuring models
Credit and restructuring modelling asks what a sponsor’s model does not: how much can be lent against a business, whether it still pays when the plan misses, how much room the covenants leave, how many weeks of cash it has when it does not, and what each creditor recovers if it fails. Four workbooks cover that arc in order: the leveraged buyout that creates the debt, the lender’s credit model that sizes and monitors it, the 13-week cash flow a stressed borrower lives by, and the recovery waterfall that divides the company when it is restructured.
By Surojit Chakraverti, founder of L3VLUP and an investor running a long-short healthcare and technology equities strategy.
On this subject: credit and restructuring.Updated 1 October 2026
The models
Core · ~60 min
Leveraged buyout model
Size a deal, run its debt schedule with a sweep, and decompose the return into growth, multiple and paydown.
Inspect the workbookAdvanced · ~45 min
Credit model
Size a leveraged loan from three tests and name the one that binds, run the borrower through a downside, read covenant headroom as an EBITDA cushion, and say what must be refinanced and what the lenders recover in default.
Inspect the workbookCore · ~35 min
13-week cash flow model
Forecast a stressed company’s liquidity week by week, size the revolver inside its borrowing base, and say in which week the covenant breaks and how much new money would keep it whole.
Inspect the workbookAdvanced · ~40 min
Recovery waterfall model
Distribute a restructured company’s value by absolute priority across a range of enterprise values, identify the fulcrum security in each, and say what every traded class returns at its market price.
Inspect the workbookHow to work through it
Read the credit and covenant guide first, then size a structure in the capital stack lab. Open the credit model and switch it to the downside case to see which covenant breaks first. The 13-week model shows the same company weekly once cash is short, and the recovery waterfall shows who owns it afterwards. Each model has a starter workbook that leaves one schedule for you to build.
The mechanics they share
Each schedule is one reusable calculation, explained on its own page with the rows it occupies in every model that uses it.
Transaction schedules
Sources and uses
What the deal costs and who funds it
The statements
Revenue build
Where the top line comes from
Operating schedules
Capex and depreciation (PP&E roll-forward)
Opening, plus capex, less depreciation, closing
Operating schedules
Working capital schedule
Receivables, inventory and payables in days
The statements
Tax
Tax on profit, and tax on operating profit
The statements
Cash flow statement
Indirect method, closing on balance-sheet cash
Financing schedules
Debt schedule
Tranches, interest, amortisation and the sweep
Valuation and returns
Returns analysis
Exit value, MOIC, IRR and the bridge
Valuation and returns
Sensitivity tables
Two assumptions at once, without a data table
Financing schedules
Debt capacity
How much a borrower can borrow, and which test binds
Financing schedules
Covenant compliance and headroom
Leverage, interest cover, fixed charge cover, EBITDA cushion
Financing schedules
Maturity profile and refinancing
What falls due when, and whether it can be refinanced
Restructuring schedules
Absolute priority distribution
Value paid out by seniority, collateral first
Restructuring schedules
Cash receipts and the collections curve
Sales to cash, week by week
Restructuring schedules
Cash disbursements by calendar
What is paid, and on which Friday
Restructuring schedules
Borrowing base and availability
What the revolver will actually lend this week
Restructuring schedules
Liquidity forecast and covenant headroom
Cash, availability, headroom, shortfall
Restructuring schedules
Claims by class
The claims register a recovery is built on
Restructuring schedules
Fulcrum analysis and implied returns
Which class is the fulcrum, and what it returns
Practise first
LBO Modelling Test · 60 min
Sit the one-hour test under a clock, in the browser or in your own workbook, and get every line of the build marked.
Paper LBO Trainer · 8 min
Solve MOIC and IRR in your head from a deal you have never seen, in under ten minutes.
Napkin LBO · 12 min
Sketch a full buyout by hand, from sources and uses through the debt paydown to the return, and say which bucket the return depends on.
IRR by Eye · 3 min
Say the IRR for any multiple and hold before the interviewer finishes the sentence, and the multiple for any IRR.
Capital Stack Challenge · 15 min
Finance a real buyout from revolver to equity, hold it through a shock, and explain every layer against the deal the sponsor actually did.
Covenant Headroom · 10 min
Compute the three maintenance ratios from a certificate, find the binding test and its EBITDA cushion, and say whether a given downside breaches.
Optimal Capital Structure · 15 min
Explain why more debt stops helping: watch coverage, rating and spread move as leverage rises until WACC turns.
Three-Statement Linker · 8 min
Walk any event through all three statements in the right order, with the right signs, and prove the balance sheet balances rather than asserting it.
Depreciation Waterfall · 10 min
Forecast depreciation from a capex plan rather than a ratio, read a capex-to-depreciation multiple, and say which part of the spend is buying growth and which is only standing still.
DCF Builder · 15 min
Build a DCF by hand from revenue to a share price, know how much of it sits in the terminal value, and name the one assumption the answer hinges on.
Where this work is done
Advise on M&A and capital raising. The training ground the rest of the map feeds off.
How to get in and preparePrice and place bonds and loans. Closest thing in banking to a markets seat with banking hours.
The same tools pointed at companies in distress. Countercyclical, and technically the hardest advisory seat.
Lend to the same companies PE buys. Downside-focused: you get paid back or you do not.
Debt of companies in trouble. Legal structure matters as much as the financials.
Buy control of established companies using debt, improve them, sell them.
How to get in and prepareRead
- How to Build an LBO Model: The Build Order That Survives a Modelling Test · Building an LBO under time pressure: sources and uses, the operating build, the debt schedule and cash sweep, returns waterfall and value creation bridge.
- The Private Equity Modelling Test: What to Expect and How to Prepare · What PE modelling tests look like: the one to three hour LBO formats, what graders check first, standard assumptions, and a two-week preparation plan.
- Paper LBO Example: A Full Walkthrough, Step by Step · A paper LBO worked step by step: entry, debt paydown, exit, MOIC and IRR, with the mental-maths shortcuts interviewers expect you to use.
- LBO Interview Questions: The Conceptual Ones Behind the Maths · The conceptual LBO questions PE interviews test: what makes a good candidate company, where returns come from, leverage limits, and the follow-up traps.
- Credit and Covenant Modelling: What a Lender Actually Tests · Modelling from the lender side: sizing debt against leverage and coverage tests, building the covenant schedule, and the downside case that sets headroom.
- Restructuring Interview Questions: Fulcrum, Waterfall & Beyond · The restructuring interview questions asked at Houlihan, PJT, Evercore and Lazard: fulcrum security, recovery waterfall and valuation in distress.
- How to Build a Merger Model: Purchase Accounting, Financing and Accretion · Building a merger model end to end: consideration mix, sources and uses, purchase accounting and goodwill, and the accretion/dilution output.
- How to Build a Three-Statement Model That Actually Balances · The build order for a three-statement model: revenue drivers, working capital, fixed assets, the debt schedule, and making the balance sheet balance.
- Scenario and Sensitivity Architecture: Building a Model That Can Be Stress-Tested · How to build scenario switching into a model properly: the INDEX and CHOOSE toggle, a scenario input block, and why base case minus ten percent says nothing.
- "Walk Me Through the Three Statements" — And Every Follow-Up · How to answer walk me through the three financial statements, and the classic 10 dollars of depreciation follow-up, with the linkage logic being tested.
- How to Build a DCF Model: Build Order, Terminal Value and the Sanity Checks · Building a DCF end to end: unlevered free cash flow, WACC, both terminal value methods cross-checked, the equity bridge, and the sensitivity table.
The vocabulary
Questions
What is the difference between a credit model and an LBO model?
They describe the same transaction from opposite sides. The LBO model is built for the sponsor and ends in an equity return. The credit model is built for the lender and ends in debt capacity, covenant headroom, a refinancing test and a recovery. They share the debt schedule, which is why both are in this library.
Where does a restructuring model start?
With liquidity, not value. The 13-week cash flow says how long the company can run and how much new money it needs; that sizes the DIP facility. The recovery waterfall then distributes the restructured company’s value among the creditors and names the fulcrum security, the class that will own it.
Which of these do interviews test?
Leveraged finance and credit interviews test debt capacity, covenants and the debt schedule; restructuring interviews test the recovery waterfall, the fulcrum and liquidity. The restructuring interview guide works through the questions, and each model page lists the mistakes a reviewer looks for.