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.