medium · Debt Capital Markets bond-instruments-structures

Why might a private equity sponsor prefer to include PIK-toggle debt in an LBO capital structure during the first 24 months post-acquisition?

1. To immediately lower the total leverage carried by the acquired company
2. To eliminate the need for any upfront equity contribution from the PE sponsor
3. To maximize cash flow available for reinvestment or to handle integration costs
4. Because PIK-toggle debt is always cheaper to service than any senior secured bank loans

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