PIK notes: Difference between revisions
From ACT Wiki
Jump to navigationJump to search
imported>Doug Williamson (Link with Unsecured debt.) |
imported>Doug Williamson (Expand first sentence.) |
||
| Line 1: | Line 1: | ||
PIK notes are debt instruments based on non-cash payment of interest coupons. | |||
Interest is usually recognised by an increase in the amount of principal owed by the borrower. | Interest is usually recognised by an increase in the amount of principal owed by the borrower. | ||
Revision as of 16:27, 22 August 2017
PIK notes are debt instruments based on non-cash payment of interest coupons.
Interest is usually recognised by an increase in the amount of principal owed by the borrower.
PIKs are generally either unsecured loans or deeply subordinated securities ranking just before equity in the capital structure.
This means that, in the event of a bankruptcy, PIKs are the last debts to be repaid, making them a high risk instrument for lenders and investors.
In order to compensate lenders for the risk, PIKs have to offer significantly enhanced rates of return to investors.
