Original issue discount is debt issued below face value and repaid at face value. The gap is part of the lender's return, on top of the interest.
What the film says
In private credit, you can lend ninety-eight dollars, and get back a hundred. That's the OID. Original issue discount. Say a company borrows a hundred million. The lender hands over ninety-eight. The company still owes the full hundred. That two million gap is part of the lender's return. It comes on top of the interest. Say the interest is ten million a year, and the loan runs four years. Two million over four years is half a million a year. So the lender earns about ten and a half, not ten. So why do investors care? The rate is not the whole return. And the borrower gets less cash than it owes. Read the price, not just the rate.
A simple example with round numbers, not advice. Terms vary by fund.
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