Payment-In-Kind Bond

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.
References in periodicals archive ?
The use of the effective-interest method to report interest income on payment-in-kind bonds (for which interest payments are made in the form of the issuer's additional debt securities bearing similar terms) and step bonds (for which periodic interest payments do not begin until a specific date in the securities' life cycle).