Why ‘Payment-In-Kind’ Debt Is So Appealing — and Risky

When private equity firms buy up target companies, they rely on one major source of financial firepower — debt, and lots of it. But what happens when the interest on that debt jumps? For some, the answer is simple: Pay it later.

In today’s higher interest rate environment, so-called payment-in-kind debt, otherwise known as PIK, is an appealing but risky way for buyout firms to keep their spending to a minimum while they try to extract returns from the businesses they’ve acquired.