In a typical restructuring first round of eight, I see two or three candidates open with a revenue-cost tree. They lose the case before the first exhibit. The sheet rewards cash in weeks, covenant headroom, and whether your plan beats liquidation value for creditors — not a prettier EBITDA bridge.
That is the thesis. Treat a distressed company like a normal profitability case and you will recommend a twelve-month footprint redesign for a firm that misses payroll in week seven. After this piece you should be able to open the case in the order the work runs, rebuild a small cash-and-recovery decision under time pressure, and know what "good" sounds like to an RST or turnaround interviewer.
What the room is actually listening for
Turnaround practices advertise the same clock the courtroom uses. AlixPartners' turnaround page puts "active management of a 13-week cash flow model" and recovery analyses in the same breath as liquidity work. DIP motions in real Chapter 11 cases attach weekly receipts-and-disbursements budgets for that horizon — PG&E's DIP motion, for example, required rolling 13-week cash-flow forecasts and variance reports as a condition of the facility.
So when you walk into the case, the interviewer is not waiting for Porter. They are waiting for four questions, in this order:
- How many weeks of oxygen (cash plus true availability)?
- Which covenant trips first, and when?
- What can you change by Friday that moves cash, not accrual profit?
- Does a going-concern plan leave creditors better off than an orderly liquidation?
If you reverse that order, you sound like a strategy intern in a room that prices time in weeks.
The three numbers that decide the case
| Number | What it is | How candidates usually miss it |
|---|---|---|
| Liquidity runway | Cash + undrawn availability, divided by weekly net burn | Quoting the bank balance; ignoring borrowing-base haircuts and reserves |
| Covenant headroom | Distance to the next tripwire (min liquidity, leverage, FCCR) | Treating a breached covenant as "a finance detail" rather than a call right |
| Recovery delta | Going-concern value to creditors minus Chapter 7-style liquidation recovery | Running a DCF for equity when the capital structure is already underwater |
The Bankruptcy Code's confirmation standard is blunt about that third number. Under 11 U.S.C. § 1129(a)(7), each impaired non-accepting creditor must receive at least as much under the plan as they would in a Chapter 7 liquidation on the effective date. In interviews you will not litigate the statute. You will be scored on whether you notice that a "brilliant" turnaround that recovers less for first lien than a process sale is not a recommendation — it is a speech.
Ned's rule. If you cannot say, in one sentence, how many weeks of cash you have, which covenant trips first, and whether liquidation beats your plan for the senior creditor, you are not ready to recommend an operating program.
Units that separate a pass from a polite no
EBITDA is not cash. Interest, maintenance capex, tax escrow, insurance renewals, and working-capital swings still leave the checking account. Add-backs that remain cash (consulting fees, overdue freight) are a trap.
Availability is not facility size. A $50m ABL with $42m drawn and $4m of reserves is $4m of oxygen, not $8m.
Runway is weeks, not "this year." Annual margin trees use the wrong clock.
Claim priority binds the feasible set. First lien, second lien, unsecured — do not argue for equity optionality until you have asked who is in the money.
Worked example: Ridgeway Fleet, sell vs save
Company and figures are invented. The structure is the one DIP budgets and liquidation analyses use in real filings.
Prompt. Ridgeway Fleet runs 42 commercial maintenance depots across the Midwest. LTM EBITDA is $22m. First-lien term loan is $185m at 9 percent cash interest (~$16.7m/year, $0.32m/week). Minimum-liquidity covenant: $15m (cash + undrawn revolver). Current cash $11m, undrawn revolver $7m, so liquidity $18m and headroom $3m. Weekly operating cash burn before interest is roughly flat at $0.4m; interest makes total weekly drain about $0.72m. In weeks 7–8 of the 13-week forecast, a combined insurance renewal and property-tax escrow of $9m hits. Sponsor wants a "fix costs, then refinance" plan: cut SG&A 8 percent ($1.2m annualized, ~$23k/week) and grow same-depot EBITDA to $28m over 18 months. Are they right?
Step 1 — cash and covenant clock.
Before the escrow spike, runway on $18m at $0.72m/week is about 25 weeks if nothing else moves. That is comfort theater. Map the trough:
| Week | Opening liquidity | Net cash (ops + interest) | One-offs | Closing liquidity | vs $15m covenant |
|---|---|---|---|---|---|
| 1–6 | 18.0 → ~13.7 | −0.72 × 6 ≈ −4.3 | — | ~13.7 | Breach in week ~4–5 |
| 7–8 | ~13.7 | −1.4 | −9.0 | ~3.3 | Deep breach |
| 9–13 | ~3.3 | −3.6 | — | negative without new money | Call risk |
The covenant is not a year-end problem. At ~$0.72m/week of drain from $18m with a $15m floor, headroom of $3m lasts about four weeks. The SG&A cut worth $23k/week buys you roughly one extra day of headroom. It does not move the escrow.
So the first recommendation is not "cut costs." It is: forbearance or waiver this week, a lender-ready 13-week forecast with the escrow marked, and a funding ask sized to the trough (cash collateral, DIP, or asset sale proceeds) — the same document shape Chapter 11 budgets use when lenders force weekly variance reporting.
Step 2 — liquidation vs going-concern for first lien.
Orderly liquidation (six months, not a fire sale): appraised depot PP&E and tools $155m, parts inventory $28m, AR collectible $18m. Realization after costs and wind-down: 70% on PP&E, 55% on inventory, 90% on AR → about $108.5 + $15.4 + $16.2 = $140m before chapter costs. Net of $8m wind-down and admin, call $132m to first lien on a $185m claim → roughly 71 cents.
Going-concern under the sponsor plan: even if you believe the $28m EBITDA story, at a generous 6.0× that is $168m of enterprise value — still inside the first-lien claim, with zero equity residual, and only if you survive the next four weeks. To bridge the escrow and covenant, you need about $12–15m of new money (trough to $15m plus a buffer). That new money will be senior or priming. After it, first-lien recovery in a "successful" turnaround is not better than a clean process sale today; it is riskier and slower.
Stabilized going-concern sale as a running business (buyer pays for fleet contracts and trained techs): say $160–170m EV if you can show 13 weeks of controlled cash and no covenant default. That path beats liquidation for the lender and beats the fantasy refinance — but it requires admitting you are running a sale process, not a PE hold-period turnaround.
Recommendation (what I score as a pass).
- Tell the sponsor the covenant trips in about four weeks; the 8 percent SG&A cut is noise on that clock.
- Ask the lender for a short forbearance tied to a board-approved 13-week forecast and a dual-track: operational cash triage (defer non-critical capex, accelerate fleet-contract collections) and a marketed process for Ridgeway as a going concern.
- Size any bridge to the week 7–8 escrow, not to an 18-month EBITDA story.
- Do not recommend equitizing the sponsor or paying related-party fees. First lien is underwater on a honest liquidation and barely covered on a hopeful EV — equity is an option, not a claim.
Risk to flag: if vendors smell a filing and move to COD, weekly burn rises and the four-week headroom collapses. That is why critical-vendor lists belong in the same breath as the cash forecast.
How a generic profitability tree fails here
- Wrong clock. Annual margin trees cannot see a week-4 covenant trip.
- Wrong decision rights. Credit documents decide what you may spend; the board does not "invest to grow out of it" while in default.
- Wrong owner of residual value. When liquidation recovery is 71 cents and EV is inside the first lien, the case is a creditor problem, not a shareholder strategy deck.
- Wrong unit of progress. "We cut SG&A 8 percent" is not progress if liquidity still breaches.
Practice this today
Rebuild Ridgeway on one sheet: opening liquidity, weekly burn, escrow, covenant line, then a three-line liquidation vs going-concern table for first lien. Time yourself to twelve minutes. Then run a scored math or structure drill on CoachNed — everything is open for seven days, no card; then $120 for a recruiting season or $49 a month.
If you want the live voice version after that, use /interview. For firm-specific RST flavor, pair this with the A&M and FTI guides linked below.
Frequently asked questions
What is a restructuring case interview testing?
Whether you stabilize cash and credit documents before you redesign the business. Interviewers listen for runway in weeks, covenant timing, and a recovery comparison that respects claim priority — not a memorized industry framework.
Do I need investment-banking experience for restructuring cases?
No. You need comfort with a direct-method cash forecast, basic credit vocabulary (availability, covenants, priming), and the discipline to say when a plan fails the liquidation test. Law-school jargon is optional; clear arithmetic is not.
How is a restructuring case different from a profitability case?
Profitability cases optimize accrual earnings over months or years. Restructuring cases optimize survival over weeks under binding credit documents. Positive EBITDA with a breached minimum-liquidity covenant is still a filing risk.
Should I recommend Chapter 11 in the interview?
Only when the numbers force it: no out-of-court bridge, covenant default imminent, and a court process (stay, DIP, sale) clearly improves recoveries or preserves going-concern value versus a disorderly collapse. Name the objective (liquidity, sale, balance-sheet fix), not the filing as a badge.
What exhibits should I ask for first?
The 13-week cash forecast, the borrowing-base or revolver availability detail, the covenant schedule with current headroom, and an aging of AR/AP. Ask for an EBITDA-to-cash bridge only after you know the runway. CoachNed is independent and unaffiliated with McKinsey, BCG, Bain, AlixPartners, Alvarez & Marsal, FTI, or any other firm named here.
Sources
- Turnaround & Restructuring | AlixPartners — firm description of 13-week cash-flow management and recovery analyses in turnaround work. Checked 2026-09-24.
- PG&E DIP financing motion (filed version) — court filing requiring rolling 13-week cash-flow forecasts and variance reporting under DIP terms. Checked 2026-09-24.
- 11 U.S.C. § 1129 — Confirmation of plan — statutory best-interests / liquidation comparison for impaired creditors. Checked 2026-09-24.
- Four steps to an effective restructuring | AlixPartners — published turnaround guidance on direct-method forecasts, liquidity runway, and borrowing-base risk. Checked 2026-09-24.
- The 13-Week Cash Flow | Alvarez & Marsal — firm thought leadership on the 13-week tool in distressed and non-distressed settings. Checked 2026-09-24.