Payment-In-Kind - PIK

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DEFINITION of 'Payment-In-Kind - PIK'

1. The use of a good or service as payment instead of cash.

2. A financial instrument that pays interest or dividends to investors of bonds, notes or preferred stock with additional debt or equity instead of cash. Payment-in-kind securities are attractive to companies who would prefer not to make cash outlays. They are often used in leveraged buyouts.

BREAKING DOWN 'Payment-In-Kind - PIK'

1. A farmhand who is given "free" room and board instead of receiving an hourly wage in exchange for helping out on the farm is an example of payment-in-kind.

2. Payment-in-kind securities are a type of mezzanine financing, where they have characteristics indicative of debt and equities. They tend to pay a relatively high rate of interest but are considered risky. Investors who can afford to take above-average risks, such as private equity investors and hedge funds, are most likely to invest in payment-in-kind securities.

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