Been thinking about this problem for the past few hours.perspective, I can see why an OID would be categorized the same as something like a financing fee, where it is netted against the debt financed and amortized over the term. However, there seems to be a conceptual difference between the two. A financing fee actually lowers the amount of debt raised- If you wanted to raise 100MM of cash, but there was a 10MM financing fee, you would need to raise 110MM of debt. On the other hand, if there was a OID of 20%, you would only need to "use" $80MM to get $100MM of cash.
By treating OID as a use of cash, you are basically forcing yourself to take on more debt in the sources section even though you are actually receiving a price discount. How does this make sense? Any help in reasoning this through with me is much appreciated.
a curious analyst.