medium · Investment Banking
In a 'PIK Toggle' scenario, if a company switches from cash-pay to PIK, what is the most likely immediate impact on its Debt Service Coverage Ratio (DSCR)?
- The DSCR worsens because total interest expense remains high.
- The DSCR improves significantly because cash interest (a denominator in many DSCR variations) decreases.
- The DSCR remains unchanged because EBITDA is the same.
- The DSCR is no longer applicable because there is no cash debt service.
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