Leveraged Finance & Credit
If a $100mm note PIKs at 10% for 3 years then is repaid, what is the balance at repayment, and how does this affect leverage versus cash-pay debt?
Model answer
It compounds: $100mm x 1.10^3 = $133.1mm at the end of year 3. Because PIK interest accrues onto principal, the debt balance — and therefore total leverage — grows every period even if the business…
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