Payment-In-Kind Bonds


DEFINITION of 'Payment-In-Kind Bonds'

A type of bond that pays interest in additional bonds rather than in cash. The bond issuer incurs additional debt to create the new bonds for the interest payments. Payment-in-kind bonds are considered a type of deferred coupon bond since there are no cash interest payments during the bond's term.

BREAKING DOWN 'Payment-In-Kind Bonds'

The types of companies that issue these bonds may be financially distressed and their bonds may have low ratings but pay interest at a higher rate. Because payment-in-kind bonds are an unusual and high-risk product, they appeal mainly to sophisticated investors such as hedge funds. Investors seeking cash flow should not purchase payment-in-kind bonds.

  1. Coupon

    The interest rate stated on a bond when it's issued. The coupon ...
  2. Bond

    A debt investment in which an investor loans money to an entity ...
  3. Payment-In-Kind - PIK

    1. The use of a good or service as payment instead of cash. 2. ...
  4. Toggle Note

    A payment-in-kind bond, where the issuer has the option to defer ...
  5. Coupon Bond

    A debt obligation with coupons attached that represent semiannual ...
  6. Interest

    1. The charge for the privilege of borrowing money, typically ...
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