Actionable Ideas for Companies and Sponsors

Junior Financing Back on the Table

Recent market volatility has re-established Paid-in-Kind Mezzanine (PIK Mezz) financing as a complementary source of long-term capital for highly leveraged companies. PIK Mezz debt is capital that resides between senior debt and common equity and offers leveraged companies additional flexibility within their capital structure. Raising a tranche of junior PIK Mezz debt could allow an issuer to de-lever through the First Lien while achieving higher total leverage.

Additionally, PIK Mezz financings provide the issuer the ability to defer cash interest payments in lieu of increased principal through payment-in-kind interest, potentially benefitting issuers by increasing cash flow to pay down senior debt, invest in working capital, relieve covenant pressure, and accrue cash to strengthen balance sheets.