easy · Private Equity & LBOs
In a five-year LBO model, how does PIK interest affect the company's Debt Service Coverage Ratio (DSCR) during the hold period?
- It worsens the DSCR because it reduces EBITDA.
- It has no impact on DSCR because DSCR only includes principal repayments.
- It improves the DSCR because it reduces required periodic cash outflows.
- It worsens the DSCR because the total debt balance is growing.
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