The portfolio company may not have enough cash to execute market expansions, do add-on acquisitions, or meet working capital needs. It’s also possible the portfolio company is still growing, and may take some time before generating higher cash flows. As a result, the portfolio company may prefer PIK interest, since PIK interest does not need to be paid in cash, but is simply accumulated on top of the debt balance and paid when the debt expires or when the company is sold.
Why would a financial sponsor choose to pay PIK interest?
Published On - May 9, 2023
