Reported 4 months ago
Private credit firms, like Blue Owl Capital Inc., are introducing a new concept called 'synthetic PIK' to allow companies to make interest payments with extra borrowing without classifying it as 'payment in kind.' As the Federal Reserve tightens its policies, making debt servicing challenging for highly indebted firms, this workaround has become popular. Synthetic PIKs are advantageous for direct lenders as they can provide additional flexibility for companies, especially those with recurring revenue and cash burn issues. While this concept isn't entirely new, it is gaining traction in recent deals to aid companies in meeting interest obligations and maintaining a stable balance sheet.
Source: YAHOO