Payment-in-Kind — interest accreted to outstanding principal rather than paid in cash. Mechanics: each period the PIK rate is multiplied by the (compounding) outstanding balance and added to principal, growing the loan and thus the eventual repayment obligation. Higher risk than cash-pay interest because: (i) the lender's recovery depends on terminal principal repayment, (ii) the borrower's leverage rises mechanically each period, (iii) interest income is booked into earnings without any cash receipt — driving a wedge between accounting NII and distributable cash. Toggle-PIK gives the borrower discretion to elect PIK in stress.