medium · Private Equity & LBOs

If the exit occurs after 5 years at the same entry multiple, how does the PIK debt affect the sponsor's exit proceeds compared to cash-pay debt of the same amount?

1. Exit proceeds are lower because the debt balance has grown through accretion
2. Exit proceeds are higher because the company saved cash during the hold period to pay down senior debt
3. Exit proceeds are the same because enterprise value is independent of the debt structure
4. Exit proceeds are higher because PIK debt is treated as equity in the enterprise value bridge

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