Everything Old Is New Again: PIK Notes

Robust demand from investors chasing yield turned 2013 into a nearly unsurpassed year for high-yield "PIK" note issuance, with a record number of issues sold in the U.S. market, and overall dollar volume lagging only boom year records set in 2007 and 2008.¹ The types and terms of PIK notes issued since the end of the financial crisis have evolved from those issued during the leveraged financing boom that preceded it. However, more remains the same than has changed. As in the past, factors such as the issuer's position in the corporate structure and the business purpose of the note offering remain key drivers of the basic interest payment terms.

The Basics

PIK notes are high yield debt securities that allow or require interest to be paid "in kind" ("PIK") in the form of additional notes or by increasing outstanding principal, instead of in cash. PIK notes fall into three broad categories: