LBO & Paper LBO
A $100 junior note carries 10% interest for a 5-year hold. Compare the exit impact of PIK versus cash-pay, with numbers.
Model answer
PIK: the balance compounds at 10%, so at exit it is 100 x 1.1^5 = 161 — the sponsor repays 61 of accrued interest out of exit proceeds, but no cash left the business during the hold, preserving…
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