Payment-In-Kind Bond

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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.
References in periodicals archive ?
Fitch excludes the HoldCo preferred PIK security from its leverage calculations as it is outside the rated entity and is structurally subordinated to the rated debt and there is no security or cash interest payment requirements.
Once the PIK security resumes paying current interest in cash, the cash flow is once again included in the interest coverage test.
If a PIK security is current on its interest, and if it is not included at a lesser value for some other unrelated reason, it is included in the par value test at its par value.