Payment-In-Kind - PIK
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.
Investopedia explains '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.