More private credit firms now accept higher-risk ‘payment in kind’ in direct-lending deals
PIK used to be associated with distressed or mezzanine segments of private credit
Benjamin Cher, Business Times
Published Tue, Nov 11, 2025 · 07:00 AM
[SINGAPORE] With higher-for-longer interest rates, regulatory capital requirements for banks and the lack of a robust public-debt market in Asia, more private companies turning to non-bank lenders for debt financing are exploring higher-risk “payment-in-kind” (PIK) options.
PIK allows borrowers to make interest payments in a form other than cash, such as by adding to the total debt or equity. For instance, interest could be added to the principal loan amount, to be paid off in full upon maturity of the loan.
In the private-credit space, PIK is typically reserved for the distressed and mezzanine segments on account of its higher risks. But now, private credit players are increasingly offering PIK in direct-lending deals.
“Historically, this feature was used almost exclusively in distressed or mezzanine transactions,” said Emmanuel Hadjidakis, principal at law firm Baker McKenzie Wong & Leow.
more...
As Jeffrey Gundlach stated, a loan marked at 100 one day may be zero the next...
BlackRock Faces 100% Loss On Private Loan, Adding To Credit Market Pain |
