PIK (Payment-in-Kind)
Corporate Credit Analysis glossary · Capital Structure & Debt Mechanics
Definition
A debt instrument that pays interest by adding to the principal balance rather than in cash; common in mezzanine and deeply junior tranches, often with a toggle giving the borrower the option to pay cash or PIK quarterly.
PIK (Payment-in-Kind) in plain English
Payment-in-Kind is a loan that pays its interest not with cash but by growing the size of the debt itself. Instead of the borrower writing a check each quarter, the interest owed gets bolted onto the amount they'll eventually have to repay, so the balance snowballs. Companies use it when they'd rather hold onto cash now, and it's most common on the riskiest, last-to-be-paid slices of debt; a "toggle" version even lets the borrower choose each quarter between paying cash or letting it pile on. It's like a credit card where you skip the payment and just watch the balance climb because the interest keeps getting added on top.
Also called: Payment-in-Kind
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