Sunday, October 27, 2013

WSJ: "Buyout Firms Throw Toggle"

PIK bond deals are back,

"A Precrisis Debt-Financing Tool Resurfaces in Neiman Marcus Deal... Buyout firms are pulling some risky debt-financing levers that were big hits during the boom years before the financial crisis—the latest example: so-called pay-in-kind, or PIK, toggle bonds."
Buying a PIK bond is a hilariously stupid idea. Right when the company gets in trouble - and the economically sensitive and leveraged companies that do PIK deals are eventually going to be in trouble - their leash gets lengthened instead of shortened. You'd be surprised how hard it is to shutdown and liquidate an insolvent company. Don't add to the delay.

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