Top 5 PJT Restructuring (RSSG) Interview Questions

PJT's restructuring practice (RSSG) is arguably the best out there and the interview questions asked are among the most difficult.

Like Evercore and Houlihan Lokey, they have a dedicated restructuring recruiting pipeline where you'll be dealing exclusively with full-time restructuring bankers throughout the entire the interview process. 

Unlike other restructuring firms, PJT's questions tilt toward being slightly more academic in focus than other firms. For example, out of the Tier 1 restructuring firms PJT is most likely to ask you about certain restructuring-specific terms like cram downs or what's included in a plan of reorganization (POR).

The reason for this tilt toward the academic is primarily because of Wharton making up such a large percent of the summer analyst class and the fact most will end up taking FNCE291.

This is not to say that you won't get traditional accounting questions (with an RX emphasis) or other more common restructuring questions, of course.

You just need to be mindful that the expectation is that you probably have flipped through books like Moyer's Distressed Debt Analysis (because many of the other interviewees will have). 

When discussing the top Evercore restructuring questions, we kept things a bit more practical so you can check out that post when you're done here. Of course, if you're looking for even more coverage I've compiled a 100-page guide and over 500 questions and answers on restructuring interview questions you can check out.

What's a pre-pack?

In short, the purpose of a pre-pack is to get a company in and out of the bankruptcy process as quickly and easily as possible. This is important because when a company files Chapter 11 - with no pre-pack - the lengthy process surrounding valuation and establishing a Plan of Reorganization can cause a massive deterioration of the underlying value of the business (not to mention traditional Chapter 11s will involve even more banking and legal fees). 

A pre-pack is a way for the debtor (company) to get the benefits of filing for Chapter 11 (being able to discharge debt, discharge bad leases, and generally stream line the capital structure) while having less value destruction that is inherent to a lengthier process. A pre-pack also signals to suppliers and customers alike that the company has filed for bankruptcy, yes, but they shouldn't be that concerned or skittish about dealing with them as they have a plan to get through it that has been agreed to by their creditors. 

The mechanics of a pre-pack are that when a Chapter 11 petition is filed it will be accompanied by a disclosure statement and POR in conjunction with an agreement to support the plan from relevant creditors in the impaired classes. 

A pre-pack can get a company in and out of Chapter 11 in just one or two months (see the recent example of Guitar Center, which took under two months).

Who wouldn't want a pre-pack (pre-packaged bankruptcy)?  

A good follow-up question surrounds who would not like a pre-pack. 

Generally it will be those who will (obviously!) not receive anything if the pre-pack goes forward. This will include out-of-the-money creditors and equity holders. Their incentive, if they are out-of-the-money, is to try to get the company to turn things around out-of-court as that will at least maintain their optionality. When a company actually files Chapter 11 it cements their losses.

How can you block a POR?

Whether your restructuring investment bank has a debtor or creditor mandate, you still need to be concerned with the capacity for more activist distressed debt hedge funds or some other players to throw a wrench into things.

In Chapter 11 who is and who is not an impaired class will be formalized and those who hold 33.4% of the debt in an impaired class have the capacity to block a POR (this can be one individual or a group of individuals who band together).

Of course, the POR can still go through via a cram down (when the court gets involved and approves the plan despite a block). However, this is very rare as the court generally likes to set guard rails and keep a distance from the infighting that naturally occurs in an in-court restructuring. 

A bond has a current price of $70, a 5% coupon, and matures next year. What is the YTM? Will the YTM be higher or lower if the bond matures in two years?

Knowing basic bond math (around calculating bond yields) is always important. The good news for you is you won't have access to a calculator, so you don't need to prepare for anything crazy. For example, we assume that all coupon payments are made annually in a lump sum.

Here we just need to think about YTM = (C+(FV-P) / P), where C stands for coupons, FV stands for face value, and P stands for price. 

So we have $5 in coupons, a face value of $100, and a price of $70. That's just 35/70 or 50% for the yield to maturity (this is the exact YTM, not an estimate). 

If the bond matures in a few years, then the YTM will be lower. While you usually don't need to give an exact number, as it won't be a clean number like above, you need to know the directionality.

You should have the intuition that the majority of the gain (assuming the bond matures and the principal is paid back) comes from the spread between the price and the face value of the bond (you're buying at $70 and getting back $100 at maturity!). So instead of getting this spread this year, we're getting it in two years, so of course the YTM will be lower as the cash is being spread out - or held back - for two years, not one. 

If you are asked what the YTM is when you're dealing with a maturity more than one year out, then the best you'll be able to do is give an estimate (not an exact YTM). 

The traditional estimated YTM formula is as follows where n is just the number of years until maturity:

Plugging in our numbers here, assuming two years to maturity, boils down to 20/85, which is 23.529% (you can check the YTM calculator here, which also gives the estimated YTM as well).

Chances are you won't be asked in any interview for even an estimated YTM when the numbers get a bit tougher to do mentally, but rather just asked the question surrounding what the YTM will be directionality (higher or lower). With that said, it's good to know how to get the YTM whether you're dealing with a bond maturing next year or many years into the future.

Let's assume we have EBITDA of $50m, EV/EBITDA = 5x, Senior Secured Debt of $150m and two tranches of unsecured debt of $100m each. What is the value of equity and the value of debt? Where would the unsecured debt trade?

This is a pretty simple waterfall question with a bit of a twist. EV is obviously just $50x5 or $250m. This will fully cover the Senior Secured debt, leaving behind $100m.

What your interviewer will want to see here is that you recognize that the two tranches of unsecured debt are pari passu. So it won't be that one of them gets a full recovery, and one of them gets nothing. Rather there is $200m in the unsecured class and that class will therefore be the impaired class in the event of a Chapter 11 (and the class that gets to vote on the POR). You would expect both tranches of unsecured debt to trade at roughly 50 ($100m/$200m). 

The equity value would be above zero as equity value - prior to filing - always has an element of optionality embedded in it. This optionality really just means that the company, even if it appears almost inevitable that it will file, may end up turning things around. If the company does turn things around - perhaps through an out-of-court restructuring - then you would expect the equity to have the biggest gains (as the bottom of the capital structure is the most volatile and any good news will result in out-sized gains). As a company gets more and more distressed, equity increasingly becomes analogous to a call option (and can be valued using the Black-Scholes model). 

Waterfall questions are reasonably simple in theory. However, follow up questions can be used to figure out how much you understand about the restructuring process. Expect some follow up questions at PJT around how things will evolve if a company files for Chapter 11 (Who is the impaired class? Who gets the reorganized equity? How should we think about the value of reorganized equity?).

Conclusion

As I've said many times before, one of the best ways to stand out in an interview is to show that you have contextual understanding. This means that you not only understand the breath of potential restructurings - both in-court and out-of-court - but also that you understand what restructuring investment bankers do day-to-day and understand what they care about when thinking about distressed companies. 

This is one of the reasons why taking folks from undergrads that teach a class on restructuring - like Wharton - is so common at places like PJT. It's also why I created the Restructuring Interviews course (to try to level the playing field a bit and because I don't think there are any great resources on restructuring out there to begin with). 

Best of luck,

Alex