medium · Private Equity & LBOs

In the context of a 'Holdco PIK' instrument, where is the interest expense recognized if the Holdco and Opco are not part of the same consolidated tax group?

1. At the Holdco level, potentially creating an NOL if there is no offsetting income
2. The interest is not recognized until the Holdco receives a dividend from the Opco
3. At the Opco level, to maximize the tax deductibility against operating cash flow
4. The interest is capitalized as an intangible asset on the consolidated balance sheet

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