PIK Loan

PIK loan’s simple meaning is payment in kind loan whose payment is done in the form of shares of company or other securities of company instead in cash payment. So, it is risky than any other type of loan. Its interest is very high than other loans which is charged on the compound basis. It has also high growth potential. Even this loan is payment in kind but its interest can be paid in cash in some proportion of total interest.

PIK loan are taken if cash position is not good and company has also power to pay interest without paying in cash form. Even company can issue new bonds to customer or add in principle for final payment. Except this, company can pay by providing his own goods or services.

According Wikipedia,
" PIK loans in leveraged buy-outs typically carry a substantially higher interest and fee burden than do senior loans, second lien loans, or mezzanine loans of the same transaction. With yield exceeding 20% per annum, the acquirer has to be very diligent in assessing whether the cost of taking out a PIK loan does not outbalance his internal rate of return of equity investment."






Accounting Education: PIK Loan
PIK Loan
Accounting Education