Pay-In-Kind (PIK) Securities

Bonds, notes, or preferred stocks with interest or dividends paid in securities rather than cash. The securities used to pay the interest or dividends are usually identical to the underlying securities, but occasionally they have different terms. Issuance of PIKs ordinarily suggests that the issuer has cash flow problems, but a PIK structure can be selected primarily to relieve an investor of reinvestment risk. A PIK bond with redemption in cash at maturity is the functional equivalent of a zero coupon bond. See also Exchangeable Payment-In-Kind (PIK) Preferred Stock.

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