Module VI· Debt Schedule MechanicsAdvanced
Question

How do you treat PIK-toggle tranches in the debt schedule?

Answer

PIK interest is paid in kind by adding interest to the debt balance instead of paying cash. In a PIK-toggle, the borrower may choose cash pay or PIK subject to terms. Model cash interest and PIK interest separately. PIK increases ending debt, reduces near-term cash outflow, and increases future interest burden and leverage.