Project Quarrystone — Refinancing & Capital Structure Review
A 1.5-hour Debt Capital Markets / Refinancing case study with a complete model answer
Modeled After
Moelis & Company
Capital markets and capital structure review: market-conditions dashboards including the leveraged loan index and high yield yield-to-worst, issuer-specific debt pricing by tranche, market-value leverage measured on the market rather than book value of debt, and illustrative investor returns under a full refinancing
Structure and exhibit set are modeled after Moelis & Company. The company, the financials and every figure in this case are entirely our own.
The Situation
Quarrystone Materials, Inc. (NYSE: QSTM) produces construction aggregates, ready-mixed concrete and asphalt from 41 active quarries and sand and gravel sites across the Ohio Valley, the mid-South and Texas, together with 88 ready-mixed plants and 14 asphalt plants.
Quarrystone Materials, Inc.
- Sector
- Construction materials — aggregates, ready-mixed concrete and asphalt paving, sold into public infrastructure, non-residential and residential construction
- Size
- Geography
- United States; headquartered in Marion, Ohio, with 41 active quarries and sand and gravel sites, 88 ready-mixed plants and 14 asphalt plants across the Ohio Valley, the mid-South and Texas
- Ownership
- Situation
The Prompt
You are the financial advisor and lead arranger to Quarrystone Materials, Inc.
Supporting Materials
What you are handed at the start of the case, in the format a real process would use.
Blank modeling template
XLSXUnlock
What You Have to Produce
The deliverables, in the order the committee will read them. The exercise runs 90 minutes.
PART 1
Capitalization, covenants and the two incurrence baskets
PART 2
Every tranche priced off its own secondary level
PART 3
Leverage on the market value of the debt, and on both earnings bases
PART 4
Coverage, on the ratio this business is sized on
PART 5
The call schedule and the make-whole
PART 6
The four courses of action, priced against one another
PART 7
Pro forma capitalization, and what each option leaves behind
PART 8
Fixed versus floating, and the hedge
PART 9
Illustrative investor returns
PART 10
The recommendation, the reservation and the sequencing
How to Approach It
The order a strong candidate works in, and why. This is the shape of the answer — the finished answer deck and Excel model are in the solution set below.
- 01
Find the date that actually binds before you price anything
- 02
Price the existing paper off its own screen
- 03
Restate leverage on the market value of the debt
- 04
Establish what kind of problem this is, once, and then move on
- 05
Describe every option in the same vocabulary
- 06
Price the option each structure gives up, not just the coupon it pays
- 07
Sequence it, and say what each step depends on
Key Concepts
The ideas this case is built on. Know these cold and the case becomes a question of execution rather than knowledge.
Springing maturity
A facility whose stated maturity accelerates automatically if a more junior or longer-dated instrument is still outstanding a set number of days before its own maturity — typically 91 days, so that the facility matures before the instrument it is measured against. It converts a distant problem into an immediate one without anybody doing anything, and it is usually the first thing to go wrong in a maturity wall. The stated maturity on the cover of the agreement is not the number to quote.
Discount margin
For a floating-rate loan, the spread over the index that equates the present value of the expected cash flows to the market price. Quoted as a spread to the current index fixing held flat, it is not the same thing as a spread to the forward curve, and a case that mixes the two conventions produces a number that means nothing. The gap between the discount margin and the contractual spread is what the market is charging over what the document pays.
Market-value leverage
Total debt measured at its traded price rather than its face amount, divided by the same earnings figure. It is the leverage a buyer of the whole capital structure would be paying, and on discounted paper it is lower than book leverage by exactly the discount. The comparison matters in a refinancing because retiring discounted paper at par is a transfer of that discount to the holders, and it is where face leverage rising on a deleveraging transaction comes from.
Make-whole and the call schedule
A call schedule is an option the issuer holds, and an option is only worth exercising when it is in the money — on paper trading well below the call price the cheapest retirement is an open-market repurchase or a tender, not a redemption. Inside a non-call period the issuer instead pays a make-whole: the present value of the first call price and every coupon scheduled through that date, discounted at a Treasury yield plus a small spread. The spread is tight by design, which is what makes the make-whole expensive rather than an alternative.
Amend and extend, and the consent problem
Each lender consents for itself on an extension, so an amendment binds only those who sign and leaves a non-extending stub at the original maturity. That makes participation the whole risk of the structure: an amendment that lands below the threshold costs the fee and any paydown and leaves the maturity problem exactly where it was. The threshold is arithmetic: it falls out of the balance the springing test is measured against.
Incurrence baskets and the greater-of test
Modern high yield and loan documents size their baskets as the greater of a fixed dollar amount and a multiple of earnings, so the capacity grows with the business and never falls below a floor. Two matter here: the secured debt basket in the indenture, which caps how much secured debt can be incurred without equally and ratably securing the notes, and the junior debt prepayment basket in the credit agreement, which caps repurchases of the notes. The second is a CASH cap, so the face it retires depends entirely on the price paid.
Fixed charge coverage in a capital-intensive business
Interest coverage divides earnings by interest and takes no account of what the business must spend to stay in business. In an aggregates producer, where capital expenditure is a very large share of Adjusted EBITDA, a credit committee sizes on fixed charge coverage — earnings less capital expenditure and cash taxes, over cash interest — because that is what actually services the debt. Where a case has a defining feature, no coverage statistic that ignores it may stand alone.
New-issue concession
The gap between where a credit clears on the observed rating grid and where it actually prices. A concession is paid for something specific — an open ratings review, a near-dated maturity, a sector out of favor — and naming what it is paid for is more useful than pricing the credit as though the concession did not exist. It is measured off the clearing table rather than assumed.
The investor return as a cost of capital
The return a lender earns by buying existing paper at the screen and holding it to a refinancing is the company's cost of capital in the only market currently quoting one. If a lender can earn that return without underwriting anything new, the new issue has to clear against it. Inverted, by holding a required return and an adverse recovery fixed and solving for the probability the price implies, it says what the market is worried about.
What Makes It Hard
The specific traps in this case — the places candidates lose the assessment without noticing.
Check Your Answer
Type the figures you produced and find out how many are right before you open the worked answer. You get a verdict and, where you are off, a pointer to the part of the build to re-check — never the number itself. Everything you type stays on this device.
How to type a figure. Digits, with an optional unit: 1,234.5, $1,234.5, 2.6x, 21.4%. For a negative use (20.0) or -20.0. Enter as many decimals as you carried — precision is never penalised.
What the Case Asked For
The arithmetic is only half of it. Tick off what you actually produced — this half is yours to score, because nothing can grade a written recommendation from a checkbox.
The Model Answer
The worked answer in full: answer deck and Excel model, built the way a banker would actually build them. It is a reference, not a submission — a strong answer under the clock is far shorter.
What the Solution Covers
- —Leveraged loan and high yield market dashboards
- —Issuer debt pricing by tranche
- —Market-value leverage versus book leverage
- —Illustrative investor returns on a refinancing
- —Call schedule and make-whole economics
- —Refinancing sequencing
Answer Deck
Full model answer, banker-formatted
Upgrade to Diamond
Sign up and upgrade to Diamond to unlock the answer deck, the Excel model and the audio walkthrough.
Get StartedThe Excel Model
The model is linked and tied out end to end — every schedule, every formula and every check, in the file itself.
Downloads are available to Diamond members
Excel Model and PowerPoint Deck and Answer Deck (PDF) — yours to open, edit and rebuild
Walkthrough
A conversational walkthrough of how to approach the case under time pressure — where to start, what to cut, and how the recommendation gets defended.
Audio Walkthrough
How to approach Project Quarrystone — Refinancing & Capital Structure Review
60-second preview — upgrade to Diamond for the full walkthrough
Frequently Asked Questions
Why is there no valuation in a case about a company's capital structure?
Because the materials this case is modeled on do not contain one. The company is solvent, cash-generative and quoted; the equity has a price and so does the debt. What is in doubt is not what the business is worth but whether the market will refinance a maturity and at what cost, and no discounted cash flow answers that. Enterprise value still appears — on both a face and a market basis, on one page — and it appears in order to establish that this is a refinancing problem rather than a solvency problem, which is a different claim from a valuation.
The paper trades below par. Isn't that a distress signal?
Not on its own, and telling the difference is part of the exercise. Debt can trade below par because the market doubts it will be repaid, or because it doubts it will be repaid ON TIME at a spread that has moved since issue. The way to tell is to look at where the equity is: if the equity is still a substantial share of enterprise value at market, the market is not pricing an impairment. The rest of the case follows from which of those two things is happening.
How should I quote a yield on a term loan against a yield on a bond?
On each instrument's own market convention, and say so once. Loans pay quarterly and are quoted at four times the quarterly internal rate; bonds pay semiannually and are quoted at twice the semiannual rate. Converting one to the other unannounced, or quoting both on an effective annual basis without saying so, produces numbers that no counterparty will recognize. Settlement dates matter too — if settlement falls on a scheduled payment date, accrued interest is zero and nothing depends on a day-count convention, which is worth stating rather than assuming.
Is an amend-and-extend a refinancing?
Only if enough lenders sign. That is the whole distinction: a refinancing repays everybody and an amendment binds only those who consent, so an amendment that falls short leaves a stub at the original maturity and, here, leaves the revolver's springing trigger exactly where it was. The threshold is computable from the balance the springing test is measured against, and it should be computed before the amendment is described as an option rather than after.
What does deferring actually cost, if the coupon does not change?
It costs the ratings outcome, the reclassification of debt as current on two successive balance sheet dates, and eventually the auditor's forward look. None of those is a spread and all of them are dated. The way to make waiting comparable to the three transactions is to price the ratings outcome in clearing spread off the observed grid, and to set it against the whole range that spread has actually traded in over the observation period — because if the entire observed range is smaller than what a downgrade costs, waiting for a better market cannot pay for it.
How much of the 90 minutes should go on the workbook?
Most of it, but not all. The template's own cover prints the measured scope, the suggested build order and the rate that implies. The balance goes on reading the two given tabs, forming the comparison and writing the recommendation. A recommendation with no supporting analysis is worth as little as an analysis with no recommendation. If you are formatting at the end, the time went to the wrong place.
Should the recommendation follow the cheapest all-in cost?
Not necessarily, and the case is built so that it does not. All-in cost — coupon plus every upfront cost spread straight-line over the life — is the crude measure, a treasurer's first pass. It ignores execution risk, it ignores the value of a prepayment right, and on this measure doing nothing reads cheapest of all, because deferring buys nothing and pays for nothing. A submission that ranks on it alone recommends the one course of action that solves nothing.
How much credit documentation do I need to read?
Enough to state a small number of terms exactly. The springing maturity trigger and what it is measured against; the springing availability test and how the line cap is computed; the two greater-of baskets and what each one caps; and who consents to what on an extension. Each of those bears directly on a number in the model, and a wrong reading of any one of them invalidates the exhibit that sits on top of it.
About This Debt Capital Markets / Refinancing Case Study
Debt Capital Markets / Refinancing case study for investment banking interviews. 90-minute format covering leveraged loan and high yield market dashboards, issuer debt pricing by tranche, market-value leverage versus book leverage. Includes the full prompt, a model answer deck, a tied-out Excel model and an audio walkthrough.
This case study sits in Investment Banking, under Debt Capital Markets. Every case ships with the full prompt, the supporting materials, a complete model answer and an audio walkthrough of the judgment behind the recommendation.
90-Minute Format
The time limit a real assessment would give you
Answer Deck
Included in the model answer
Excel Model
Included in the model answer
Audio Walkthrough
How to approach the case under time pressure
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