Would you accept payment in kind?
A US sponsor-backed software company has a $10m loan due in two years. The amendment would replace 10% annual cash interest with 10% interest added to principal at each year-end. The company projects $11m of refinancing proceeds at maturity.
The question
All figures are in USD millions. This is a fictional US loan.
“Decide whether to accept the amendment, then revise your answer after an equity proposal.”
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A strong answer, step by step
Open each step in turn. This is one strong answer, not the only one.
Step 1: Check near-term liquidity
What would you do here? Open the move you’d make.
Treat the interest as forgiven
Tempting, but it misses something. The unpaid interest becomes principal.
Calculate the cash interest relief
The strong move. The amendment helps near-term liquidity.
See how a strong candidate says it
“The amendment saves $1m of cash interest in each year compared with the original loan.”
Why it works: The amendment helps near-term liquidity.
Step 2: Test the maturity claim
What would you do here? Open the move you’d make.
Compound the balance for two years
The strong move. The maturity test reveals the cost of preserving cash now.
Compare $11m with $10m
Tempting, but it misses something. The original principal excludes the interest added to debt.
See how a strong candidate says it
“The balance rises to $11m and then $12.1m. Refinancing proceeds of $11m leave a $1.1m gap.”
Why it works: The maturity test reveals the cost of preserving cash now.
Step 3: Review a funded paydown
What would you do here? Open the move you’d make.
Count a letter of support as cash
Tempting, but it misses something. A letter does not reduce the balance.
Recalculate after a $2m sponsor paydown at signing
The strong move. A paydown reduces both opening principal and later accrued interest.
See how a strong candidate says it
“With a funded paydown, $8m grows to $9.68m. The $11m refinancing estimate now exceeds debt by $1.32m.”
Why it works: A paydown reduces both opening principal and later accrued interest.
Step 4: Make the amended decision
What would you do here? Open the move you’d make.
Require funded equity and test the refinance
The strong move. The maturity test depends on the reliability of the takeout.
Approve on the estimate alone
Tempting, but it misses something. Projected refinancing proceeds may fall before maturity.
See how a strong candidate says it
“I would consider the amended terms only after the paydown and a downside refinance check.”
Why it works: The maturity test depends on the reliability of the takeout.
The answer, in short
- Decision
- Reject the amendment as proposed.
- Because
- The borrower runs out of refinancing proceeds before it repays the amended claim.
- What would change it
- A funded paydown and a credible downside takeout can change the decision.
Reset to $10m. If the refinancing estimate falls to $9m, does the $2m paydown still work?
Common traps
- Using the lower near-term cash interest as proof of repayment.
Check your answer
- I separated cash interest from accrued interest.
- I compounded the debt balance.
- I calculated the refinance gap.
- I made the paydown a condition.
Last reviewed Nov 10, 2026