PIK
Payment-in-Kind
Short definition
PIK is interest added to principal instead of paid in cash. It eases the cash DSCR denominator for a while and grows the debt stock and exit leverage.
Detailed explanation
It is used in mezzanine and some LBOs in cash-tight years. A toggle is a cash/PIK choice; choosing PIK usually costs extra via covenant and fees.
P&L interest continues; cash does not leave. Net debt and future cash service grow. Tax deductibility of unpaid interest can be limited.
Why it matters for the CFO
In a high-rate regime PIK looks like it saves cash DSCR; the refinancing wall at maturity is thicker.
How it is calculated
PIK bakiyeₜ = bakiyeₜ₋₁ × (1 + r_PIK) (nakit kupon sıfır veya kısmi)
If the cash coupon is zero, all of r compounds into principal. Hybrid PIK sends the cash slice to DSCR and the PIK slice to principal.
Variables in the formula
- r_PIK: rate added to principal instead of cash
How to read it
A cash-DSCR improvement is a rise in economic leverage. The exit multiple must carry the PIK balance.
Numerical example
100 mn TL PIK at 20%, no cash coupon: year-end balance 120 mn TL. Cash interest 0; net debt +20 mn TL.
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Definitions are educational. They are not investment, credit or tax advice.