medium · Private Equity advanced-lbo
From a tax perspective, why might a borrower actually prefer cash-pay interest over PIK interest?
- Because paying cash interest reduces the company's taxable income.
- They usually don't prefer cash for tax reasons; they prefer PIK for liquidity reasons.
- Because cash interest is the only type that is tax-deductible.
- Because cash interest allows the company to pay less in taxes *today* by utilizing the tax shield.
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