Apollo company halts cash payouts

A fourth company owned by private equity firm Apollo Management has exercised its option to suspend cash payments on part of its debt, taking advantage of one of the most controversial financing techniques of the leveraged buy-out boom.

The company, Momentive Performance Materials, the former GE Advanced Materials business, employed a so-called payment-in-kind – or PIK – feature.

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During the buy-out boom, Standard & Poor’s Leveraged Commentary & Data estimates 43 bond deals were done with a PIK feature.

Some analysts suspect, however, that the actual number was higher.

In at least eight of these deals, the borrowers have opted to suspend cash interest payments in the face of economic weakness, a development that is sure to fuel the debate over whether PIKs were a good idea in the first place.