How does a PIK loan work?

A payment-in-kind or PIK loan is a loan where the borrower is allowed to make interest payments in forms other than cash. The PIK loan enables the debtor to borrow without having the burden of a cash repayment of interest until the loan term is ended. PIK loans are commonly used in leveraged buyout (LBO) transactions.

What is a PIK fee?

PIK Fees means the payment-in-kind of the Undrawn Commitment Fee by increasing the outstanding principal amount of the Loans.

Is Pik an interest expense?

PIK Calculations Remember PIK interest is a noncash expense, since it’s being paid with more debt instead of cash.

What are PIK shares?

PIK Shares means shares of Preferred Stock issued as pay-in-kind dividends on the Shares or any previously issued PIK Shares.

Is PIK senior debt?

This type of financing is suitable for investors that are looking for higher returns and willing to assume the high risk. PIK financing is unsecured, not based on any assets, and subordinated to other senior debts of the company.

How is PIK interest taxed?

Unlike most business loans, though, the interest on a PIK loan isn’t actually paid in cash during the loan term. Instead, the borrower supplies the interest in non-cash form. Even so, as long as the loan is used for business purposes, the value of PIK interest should be tax-deductible.

What is PIYC debt?

PIYC Fixed Obligation means a Collateral Debt Obligation that bears interest by reference to a fixed rate of interest and in respect of which the interest amount thereunder is payable on a periodic basis on each interest payment date relating to such Collateral Debt Obligation, provided that, upon satisfaction of …

What is a preferred PIK?

Some preferred stock provides that, instead of a cash dividend, the issuing company will pay PIK (payment-in-kind) dividends that grant the dividend recipient additional shares of the same class or series of preferred stock of the issuing company (this could be considered akin to compound interest).

Is PIK interest considered OID?

Insight. Unlike QSI, PIK interest is subject to the OID rules, meaning the deduction of interest expense or inclusion of interest income does not hinge on whether cash payments are made.

Is Pik considered OID?

PIK interest is accounted for under the original issue discount (OID) rules for inclusion into income. Therefore, a cash method creditor holding a PIK note is required to include current interest into income regardless of when it receives cash payment.