hard · Private Equity & LBOs
In an LBO, a sponsor funds part of the purchase with $150M of PIK (payment-in-kind) preferred at a 12% rate that accretes annually and is NOT cash-pay. The company also has $400M of cash-pay term debt at 7%. EBITDA is $200M, D&A $50M, capex $45M, cash tax rate 25%, no working-capital change.
Ignoring any tax deductibility question on the PIK for a moment, what is the Year-1 cash flow available to amortize the cash-pay term loan, and how does the PIK accretion affect the period's leverage?
- $92.75M of cash sweep; PIK accretes $18M, raising total net debt despite term-loan paydown
- $74.75M of cash sweep; PIK accretes $18M and consumes cash interest
- $92.75M of cash sweep; PIK accretion reduces total net debt because it is non-cash
- $110.75M of cash sweep; PIK is excluded entirely from the leverage calculation
Sign up free to see the explanation and track your rank →
More Private Equity & LBOs practice
- If the GP receives a 20% carry on the profit from Deal A immediately, and the fund eventua
- Following the investment, what is the investor's ownership percentage in the company, assu
- What is the Interest Coverage Ratio?
- A private equity firm is calculating a 'Public Market Equiva… — If the KS-PME score is 1.1
- A sponsor provides an 'Equity Cure' to a portfolio company. What is the standard purpose o
- What is the new effective conversion price for the growth equity investor?
- Which company will report a higher 'Gross Margin' and a higher ending 'Inventory' value on
- What is the company's Interest Coverage Ratio?