medium · Private Credit loan-structures-instruments
A fund manager reports that a $100.0M loan is now on 'Nonaccrual' status.
Which of the following best describes the accounting treatment of this loan in the fund's financial statements?
- Interest continues accruing on the books as PIK income until the borrower's liquidity position improves.
- The fund continues to recognize full GAAP interest income while booking a 100% reserve against that same accrual.
- The fund stops booking interest income and any cash received is typically applied to reduce the principal balance.
- The loan must be written off entirely to zero immediately and removed from the fund's balance sheet without exception.
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