medium · Private Credit loan-structures-instruments
A senior secured loan has a 2% 'PIK toggle'. If the base margin is SOFR + 600 bps and the borrower exercises the toggle, what is the cash margin and what happens to the PIK portion?
- SOFR + 800 bps all-cash; 0% PIK deferral
- SOFR + 600 bps cash; 2% paid as warrant coverage instead
- SOFR + 600 bps cash; 2% PIK booked as extra profit fee
- SOFR + 400 bps cash; 2% PIK added to principal
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