easy · Debt Capital Markets bond-instruments-structures

Why might a private equity sponsor prefer to include PIK debt in a leveraged buyout (LBO) structure?

1. To ensure the company immediately distributes all of its annual earnings out to its shareholders.
2. To provide the incoming management team with a lower-risk, senior-ranking debt instrument they can hold safely.
3. To reduce the blended interest rate across the entire combined debt package that is financing the buyout transaction.
4. To increase the amount of leverage possible while preserving cash for operations and senior debt service.

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