Will PIK toggle bonds come back to hurt Apollo?

Recall back in the boom days of private equity, sponsors were calling the shots. One reflection of that was the rise in pay-in-kind toggle interest options on buyout debt. Pay-in-kind notes allow a company to pay interest with more debt rather than cash. TheDeal.com notes that before 2005, PIK loans and notes had been issued mainly as subordinated or convertible debt. During the boom, they were commonly used as senior debt to finance leveraged buyouts or pay sponsors' dividends. After a deal review, Moody's concludes that Apollo has been a big user of such bonds, electing relatively more often to pay in more bonds. Such bonds may buy a portfolio company some breathing room, but in the end they may merely be postponed. The piper will have to be paid at some point. Certainly most people will see the PIK options as a bad sign.

For more:
- here's the article from TheDeal.com

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