PIK (Payment-in-kind) securities

PIK (Payment-in-kind) securities

Highly bonds or preferred stock that pay interest or dividends through additional bonds or preferred stock.

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PIK (Payment-in-kind) securities

A bond or preferred stock in which coupon payments or dividends come in the form of more bonds or preferred stock, rather than cash. At times, the investor has the option of choosing whether to accept cash or payment-in-kind, but more often this option resides with the issuer. A problem with PIK securities for the investor is the fact that he/she must pay income taxes on the dividends or coupons as if they were paid in cash, which may cause a liquidity problem. As a result, these securities are considered highly speculative. PIK securities, especially PIK stocks, are relatively unusual, and are nearly always the result of a leveraged buyout.