payment-in-kind security (PIK)

payment-in-kind security (PIK)

A relatively unusual type of security that allows the issuer to pay the investor with additional shares (in the case of PIK preferred) or with bonds (in the case of PIK bonds) rather than with cash. Payment-in-kind bonds and preferred stock may cause cash flow problems for investors who must pay income taxes on the market value of the additional securities received. PIK securities nearly always originate as a result of a leveraged buyout.