Payment-in-Kind (PIK)

In capital markets, PIK debt is a high-yielding subordinated debt instrument that pays interest to holders in additional securities rather than cash. Alternatively, PIK instruments can be structured in such a way that interest payments are accrued i.e. added to principal and paid at the end of the debt term. PIK debt, by definition, is attractive to companies seeking to keep cash payments to a minimum, such as start-ups, growth companies, companies involved in leveraged buyouts, or companies with poor credit that may lack the cash to service debt.