easy · Private Credit & Debt loan-structures-instruments
Why might a lender require a higher interest rate for a PIK loan compared to an all-cash interest loan?
- Because PIK interest is generally not tax-deductible for the borrower.
- To compensate for the increased risk of deferred payment and the lack of a periodic 'cash test'.
- To discourage the borrower from ever using the PIK option in a toggle facility.
- To cover the higher administrative costs of tracking equity warrants attached to PIK loans.
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