medium · Private Credit loan-structures-instruments
What is the 'compounding frequency' of a PIK loan, and why does it matter?
- It is the speed at which the lender can resell or transfer its loan position to another buyer in the active secondary loan trading market.
- It is the timing (e.g., quarterly) at which interest is added to the principal; more frequent compounding results in a higher total debt balance.
- It refers to how many different lenders participate in the syndicate and share the funded loan commitment across the layers of the capital structure.
- It is the maximum number of times a borrower is permitted to skip a scheduled cash interest payment before that failure triggers default under the agreement.
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