hard · Private Credit & Debt 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 to accrue but is categorized as PIK until the borrower's liquidity improves.
- The fund continues to recognize GAAP interest income but provides a $100% reserve in the cash flow statement.
- The fund stops booking interest income and any cash received is typically applied to reduce the principal balance.
- The loan must be immediately written off to zero and removed from the balance sheet.
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