PIK interest
Paid-in-kind debt interest is satisfied by adding to the debt balance or issuing additional debt instead of paying cash, as the instrument provides. Preferred-equity PIK dividends are a separate mechanism and do not inherently increase debt principal.
PIK interest in round numbers
Hypothetical US$ millions: debt of 10.0 bears 12% annual PIK interest, capitalized once each year. Assume no cash interest, repayments, new borrowing, fees or other balance changes. Year-one interest is 1.2 and closing debt is 11.2. Year-two interest is 11.2 × 12% = 1.344, giving closing debt of 12.544.
Scroll horizontally to read all columns.
| Measure | Year 1 | Year 2 |
|---|---|---|
| Opening debt | 10.000 | 11.200 |
| PIK interest at 12% | 1.200 | 1.344 |
| Closing debt | 11.200 | 12.544 |
Terms Related to PIK interest
Mezzanine · High-yield (junk) bonds · Redeemable (straight) preferred · Structural vs contractual subordination · PIK toggle · All of the glossary