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Payment-In-Kind Bond
(redirected from PIK Securities)

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Payment-In-Kind Bond
A bond in which coupon payments come in the form of more bonds, 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 bonds for the issuer is the fact that it becomes tempting to pay coupons with more debt rather than cash when the company has a liquidity problem. Of course, doing this often only adds to the issuer's liquidity problems. This type of bond was not unusual during the private equity boom in the mid-2000s, but became rare during the credit crunch at the end of the decade.
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PIK securities pose an interesting concern for a CDO transaction because there is no guarantee that these assets will resume current interest payments in cash or will repay the interest that has been deferred and capitalized and the interest due on such deferred interest.
Structural and collateral considerations by Albulescu, Henry C. / The Securitization Conduit
 
 
 
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