Bonds: Risk is back!
22.05.12
). Meredith Whitney was right
The "toggle PIK" structure gives TransUnion the option to issue more debt instead of doling out $29 million in semiannual cash payments to debt holders.
"This deal got everyone's attention because it showed that there really is an appetite for these risky securities," said Richard Farley, a corporate partner at Paul Hastings.
TransUnion, Goldman Sachs, and Advent International declined to comment on why they chose this financing structure.
Because of the success of the TransUnion deal, several sources said deals with this type of financing are in the pipeline and could be announced in the next several weeks.
In theory, this structure should give a company like TransUnion more options should it run into trouble. If it sees a decrease in cash flow for a few quarters, it can issue more bonds and conserve cash.
In practice, however, companies with toggle PIK bonds have been more likely to wind up in bankruptcy. Between 2006 and 2010, companies with toggle PIK bonds defaulted at nearly twice the rate of companies with similar amounts of debt, according to Moody's.
Source: CNN