Payment-in-Kind (PIK)

Definition

A financing feature that allows a borrower to make interest payments by issuing additional debt or equity instruments rather than paying cash, thereby conserving cash flow during periods of investment or growth. PIK interest accrues and compounds, increasing the principal balance over time. PIK features are commonly used in mezzanine financing, high-yield bonds, and preferred equity instruments, and are particularly prevalent in leveraged buyout structures where cash flow is directed toward debt reduction.