easy · Private Credit loan-structures-instruments
If a borrower has a 'PIK-only' loan (no cash interest), how does the lender verify the company is still healthy?
- They don't; a PIK-only loan is essentially a passive bet on the company's future value.
- By monitoring financial maintenance covenants and quarterly financial statements.
- By waiting for the company to go public and checking the stock price.
- By checking if the borrower continues to capitalize the interest every period.
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