1. Describing a
bond or
preferred stock in which
coupon payments or
dividends come in the form of more bonds or
shares, 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 issuer is the fact that it becomes tempting to pay bond coupons with more debt rather than cash when the company has a
liquidity problem. Of course, doing this often adds to the issuer's liquidity problems. Likewise, payment-in-kind securities can hurt
investors as they must pay taxes on the
market value of these securities and may lack the cash to do so. Payment-in-kind bonds were not unusual during the
private equity boom in the mid-2000s, but became rare during the
credit crunch at the end of the decade.
2. The act of
compensating the
seller of a good or service with another good or service rather than
money. See also:
Barter.