easy · Private Credit loan-structures-instruments

A Payment-in-Kind (PIK) feature in a loan to Apex Manufacturing results in which of the following mechanical outcomes?

1. The borrower must pay a higher cash dividend each quarter to the PE sponsor.
2. The lender receives equity warrants in exchange for a lower cash interest rate.
3. The outstanding principal balance increases each period as interest is capitalized.
4. The loan automatically converts into ordinary equity shares of the company at maturity date.

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