Payment-in-Kind (PIK) Income
Abbreviation: PIK
Plain-English definition
Payment-in-kind income is noncash income earned when a borrower satisfies an interest or dividend obligation by adding value to the instrument, issuing additional securities, or otherwise deferring cash payment under the agreement.
Why it matters
A BDC may recognize PIK as income before receiving cash. Collection therefore depends on the borrower's later ability to repay or refinance, and the BDC's exposure to that borrower may increase while the PIK accrues.
Example
A $10 million loan with a 2% PIK component could add $200,000 to principal over a year instead of paying that amount in cash, subject to the contract and accounting treatment.
How income investors use it
Separate cash interest from PIK, measure PIK as a share of investment income, identify the borrowers producing it, and review whether accrued amounts are later collected, restructured, written down, or placed on non-accrual.
Fly High perspective
If the company's chosen earnings measure includes PIK, preserve that same earnings definition in the Fly High calculation. The quality and collectability of PIK may inform individual analysis, but they do not justify silently substituting a different earnings measure.
This material is general education, not individualized investment, tax, or legal advice.