medium · Private Equity advanced-lbo
What happens to the 'tax shield' generated by PIK interest expense if the company is currently in a 'Loss' position (Negative EBT)?
- The company receives a direct cash refund from the government equal to the PIK expense.
- PIK interest never generates a deductible tax shield for the company under any circumstances.
- The tax shield associated with that PIK interest expense is permanently and irrevocably lost forever.
- The tax shield is deferred as a Net Operating Loss (NOL) to be used in future profitable years.
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