Question

Mezzanine lenders will occasionally include features like "PIK Toggle"s, which allow the borrower to "pay" its interest by rolling it into the loan balance. Thus, if the company can't make an interest payment as normally scheduled, it can defer some or all of the interest for a period of time. This is one of the reasons why borrowers like mezzanine debt. True or false?

Answer 1

True

Step-by-step explanation:

Under PIK loan, the borrower doesn't have to make cash interest payment instead, the interest accrues to the amount of the principal loan which continues to increase over time.

A PIK "toggle" allows the company to choose whether to pay the interest in cash or have it accrue to the principal.