easy · Private Credit loan-structures-instruments

What is the fundamental definition of Payment-in-Kind (PIK) interest in a private credit transaction?

1. Interest that is paid using the company's common equity shares at every period.
2. A one-time fee paid at the closing of the deal to increase the lender's effective yield.
3. Interest that is added to the principal balance of the loan rather than being paid in cash.
4. A penalty fee charged to the borrower for failing to meet a financial maintenance covenant.

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