In the Press
May 31, 2024

Us Insight: Synthetic Structure That Functions as DDTL Pays PIK Interest in Cash (LevFinInsights)

PIK-toggle options have become an increasingly common tool in the arsenal of direct lenders and have helped them win deals from an increasingly issuer-friendly institutional loan market. But what if PIK interest could be paid in cash? Well, it can. Cue the synthetic interest payment facility (SIPF). The SIPF basically functions as a capital reserve for PIK interest payments. The SIPF innovation can help private credit managers that have fund-level limits on the amount of PIK interest remain competitive in today’s market. “Synthetic DDTLs essentially bridge a gap," Private Equity partner Dylan Brown said. “If a borrower wants to PIK interest to save cash, they can PIK a portion of the margin on the loan and the DDTL availability would be reduced. The lender would fund the DDTL and apply the proceeds to the cash-pay portion of interest and, thereafter, more TL principal is outstanding,” he said to LevFinInsights.