medium · Debt Capital Markets
An investor is analyzing a PIK-toggle note and notices that the Yield-to-Worst (YTW) is currently equivalent to the Yield-to-Maturity (YTM) assuming cash pay.
What does this suggest about the toggle option?
- The market expects the issuer to pay cash through maturity because the PIK coupon is economically unattractive to the issuer
- The issuer has already defaulted and the bond is trading on recovery value
- The PIK rate is lower than the cash rate, creating a 'negative step-up'
- The bond is expected to be called at the first call date at a significant premium
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