medium · Debt Capital Markets
When computing a borrower's Total Leverage ratio (Total Debt / EBITDA), how is the interest from a PIK-toggle note typically treated by credit analysts?
- It is treated as a contingent liability and excluded from the debt balance until maturity
- PIK interest is added to the debt balance as it is incurred, increasing total leverage over time
- It is treated as equity credit similar to a corporate hybrid instrument
- It is netted against cash balances because it represents a non-cash expense
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