medium · Investment Banking ma-lbo
In an LBO, a 'PIK Toggle' feature on a mezzanine debt instrument primarily provides the borrower with which of the following benefits?
- Complete exemption from all financial maintenance covenants for the full duration of the loan term.
- Automatic conversion of the outstanding debt into common equity upon achievement of specific EBITDA targets.
- A meaningfully lower overall cost of capital compared with traditional senior secured bank debt from the lending syndicate.
- The ability to conserve cash during periods of tight liquidity by adding interest to the principal balance.
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