medium · Private Credit loan-structures-instruments
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 cash interest paid at the OpCo level.
- It reduces the equity cushion because lease liabilities rank ahead of HoldCo equity claims.
- It increases the equity cushion by adding new Right-of-Use assets to the OpCo balance sheet.
- It has no effect on the equity cushion, because HoldCo lenders only care about cash-pay debt obligations.
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