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PIK (Payment-in-kind) securities

Highly bonds or preferred stock that pay interest or dividends through additional bonds or preferred stock.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Payment In-Kind

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved


Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
Supporters opposed to the Glazers have always claimed that such talk was false, with the money being earmarked for the PIK loans, which are now attracting interest at an eye-bulging 16.25%
Last month United reported losses of Au83.6 million, with more than Au40 million attributable to interest payments on the Au500 million bond issue, and accrued interest on the PIK loans.
Green, a United fan, said: "This is not meant to be scaremongering - the Glazers have a stark choice - they can either pay off the PIKs or risk losing the club.
"The money the Glazers make from First Allied and the Buccaneers is totally inadequate to deal with the PIKs - only Manchester United can provide the money to deal with those."
The major grandfather exceptions are for (i) obligations to issue PIK bonds, (ii) refinancings, (iii) binding contracts, and (iv) convertible preferred stock.
Specifically, the rules do not apply in respect of PIK bonds issued pursuant to the terms of a debt instrument issued on or before July 10, 1989.
(1) A bond received as payment of interest is known as a "baby bond" or a "pay-in-kind" (PIK) bond.
The government's mistake was letting farmers use PiK certificates to pay back their government loans.
The simplest PiK scheme, the PiK and Roll (named for a basketball play) works like this.