medium · Private Credit loan-structures-instruments

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'?

1. The 'OID' on the note has already fully amortized, which mechanically causes its price to drop.
2. HoldCo notes have higher 'Beta' and react more sharply to a perceived decline in the company's asset value.
3. HoldCo notes are generally more liquid than senior debt and are therefore easier to sell at a discount.
4. The senior debt's floating rate structure prevents it from ever trading below roughly 95 cents on the dollar amount.

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