hard · Private Credit & Debt
If a HoldCo PIK note is marked at 85 cents on the dollar (Fair Value) while OpCo senior debt is at 98 cents, what is the most likely cause for this 'Pricing Divergence'?
- The 'OID' on the HoldCo note has been fully amortized, causing the price to drop.
- HoldCo notes have higher 'Beta' and react more sharply to a perceived decline in the company's asset value.
- HoldCo notes are more liquid and therefore easier to sell at a discount.
- The senior debt's floating rate prevents it from ever trading below 95 cents.
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