Payment-In-Kind Bonds

What are '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.

RELATED TERMS
  1. Payment-In-Kind - PIK

    1. The use of a good or service as payment instead of cash. 2. ...
  2. Bond

    A debt investment in which an investor loans money to an entity ...
  3. Extendable Bond

    A long-term debt security that includes an option to lengthen ...
  4. Discount Bond

    A bond that is issued for less than its par (or face) value, ...
  5. Bond Resolution

    1. A document used with government bonds, especially general ...
  6. U.S. Savings Bonds

    A U.S. government savings bond that offers a fixed rate of interest ...
Related Articles
  1. Markets

    How To Invest In Corporate Bonds

    Understand the basics of corporate bonds to increase your chances of positive returns.
  2. Personal Finance

    How To Choose The Right Bond For You

    Bond investing is a stable and low-risk way to diversify a portfolio. However, knowing which types of bonds are right for you is not always easy.
  3. Markets

    5 Fixed Income Plays After the Fed Rate Increase

    Learn about various ways that you can adjust a fixed income investment portfolio to mitigate the potential negative effect of rising interest rates.
  4. Managing Wealth

    5 Reasons to Invest in Municipal Bonds When the Fed Hikes Rates

    Discover five reasons why investing in municipal bonds after the Fed hikes interest rates, and not before, can be a great way to boost investment income.
  5. Trading

    Top 6 Uses For Bonds

    We break down the stodgy stereotype to see what these investments can do for you.
  6. Retirement

    Should I Invest in Bonds After I Retire?

    Yes, retirees should invest in bonds, but remember that not all bonds are safe investments. Seek the help of a financial advisor.
  7. Investing

    What is a Premium Bond?

    A premium bond is one that trades above its face or nominal amount.
  8. Managing Wealth

    A Guide to High Yield Corporate Bonds

    The universe of corporate high yield bonds encompasses multiple different types and structures.
  9. Financial Advisor

    Advising FAs: Explaining Bonds to a Client

    Most of us have borrowed money at some point in our lives, and just as people need money, so do companies and governments. Companies need funds to expand into new markets, while governments need ...
  10. Markets

    Using Excel PV Function to compute Bonds PV

    To determine the value of a bond today - for a fixed principal (par value) to be repaid in the future at any predetermined time - we can use an Excel spreadsheet.
RELATED FAQS
  1. Do long-term bonds have a greater interest rate risk than short-term bonds?

    The answer to this question lies in the fixed income nature of bonds and debentures, often referred to together simply as ... Read Answer >>
  2. What determines the price of a bond in the open market?

    Learn more about some of the factors that influence the valuation of bonds on the open market, and why bond prices and yields ... Read Answer >>
  3. Which factors most influence fixed income securities?

    Learn about the main factors that impact the price of fixed income securities, and understand the various types of risk associated ... Read Answer >>
  4. What are the key factors that will cause a bond to trade as a premium bond?

    Learn about the primary factor that can cause bonds to trade at a premium, including how national interest rates affect bond ... Read Answer >>
  5. Why is my bond worth less than face value?

    Find out how bonds can be issued or traded for less than their listed face values, and learn what causes bond prices to fluctuate ... Read Answer >>
  6. What forms of debt security are available for the average investor?

    Discover the various different types of debt securities, issued by government entities or corporations, that are available ... Read Answer >>
Hot Definitions
  1. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  2. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  3. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  4. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  5. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
  6. Security

    A financial instrument that represents an ownership position in a publicly-traded corporation (stock), a creditor relationship ...
Trading Center