hard · Private Credit & Debt
Under IFRS 16, a company capitalizes $50 million of lease liabilities at the OpCo level.
How does this 'Lease Adjustment' typically affect the 'Equity Cushion' available to HoldCo PIK lenders?
- It increases the equity cushion by reducing the amount of cash interest paid at OpCo.
- It reduces the equity cushion because lease liabilities rank ahead of HoldCo equity claims.
- It increases the equity cushion by adding 'Right-of-Use' assets to the balance sheet.
- It has no effect because HoldCo lenders only care about cash-pay debt.
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