hard · Investment Banking ma-lbo

Holding the exit enterprise value fixed, which structure tends to produce the higher equity MOIC, and what is the subtle driver experts most often misjudge?

1. Structure A; cash-pay debt lets the sponsor sweep principal so the debt balance and interest both fall over time, whereas the PIK's compounding balance crowds out deleveraging and leaves a larger claim ahead of equity at exit.
2. Structure B; the PIK's accrued interest is entirely non-cash, so it never actually reduces equity value at exit, and the lower cash burden mechanically lifts the realized MOIC regardless of the compounding balance.
3. Structure A; the only real driver is the flat rate differential, so the 10% cash-pay debt simply beats the 12% PIK note by exactly the 2-point spread applied each year to the opening loan balance.
4. Structure B; PIK debt earns the identical tax shield on accrual that cash interest earns when actually paid, so it deleverages the equity claim just as fast while still preserving cash available for the sponsor's debt sweep.

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