Deleverage and PIK notes: Difference between pages

Revision as of 14:21, 22 August 2017

Debt instruments based on non-cash payment of interest coupons.

Interest is usually recognised by an increase in the amount of principal owed by the borrower.

PIKs are generally either unsecured loans or deeply subordinated securities ranking just before equity in the capital structure.

This means that, in the event of a bankruptcy, PIKs are the last debts to be repaid, making them a high risk instrument for lenders and investors.

In order to compensate lenders for the risk, PIKs have to offer significantly enhanced rates of return to investors.

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-To deleverage is to decrease financial leverage.
+Debt instruments based on non-cash payment of interest coupons.
+Interest is usually recognised by an increase in the amount of principal owed by the borrower.
+PIKs are generally either unsecured loans or deeply subordinated securities ranking just before equity in the capital structure.
+This means that, in the event of a bankruptcy, PIKs are the last debts to be repaid, making them a high risk instrument for lenders and investors.
+In order to compensate lenders for the risk, PIKs have to offer significantly enhanced rates of return to investors.
-For example by paying off existing debt, or by not renewing maturing debt.
 == See also ==
-* [[Leverage]]
+* [[Coupon]]
+* [[Equity]]
-[[Category:Corporate_finance]]
+* [[Interest]]
-[[Category:Risk_frameworks]]
+* [[Notes]]
+* [[Payment in kind]]
+* [[Principal]]
+* [[Secured debt]]
+* [[Subordinated debt]]
+* [[Unsecured debt]]