medium · Private Credit loan-structures-instruments
Which of the following is a primary risk of high PIK-to-income ratios in a private debt portfolio?
- It decreases the lender's nominal claim size in a bankruptcy or restructuring scenario.
- It allows a borrower to mask cash flow deterioration by 'paying' interest without generating cash.
- It triggers immediate cash tax liabilities for the borrower that must be settled regardless of cash flow.
- It typically forces the lender to mark the loan at a meaningful premium relative to par value.
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