Actionable Ideas for Companies and Sponsors

HoldCo PIK Toggle Notes to Finance Dividend Recaps

With the high yield bond primary market exhibiting great strength, investors recently have shown interest in buying HoldCo PIK Toggle Notes from sponsor-owned companies to fund dividend distributions. These notes are issued at the holding company level, and the PIK Toggle component is issued with a base coupon as well as a slightly increased coupon, the latter which the borrower will have to pay if it elects to defer interest payments. The flexible PIK Toggle structure also allows sponsors to avoid restrictive language in the OpCo bond indentures that prevent dividend distributions. Sponsor portfolio companies with larger EBITDA, whose OpCo bonds are yielding single digits in their non-call period, should consider taking advantage of this current market environment to issue PIK Toggle Notes to finance dividends.