The Rise of Payment-in-Kind Securitization

Payment-in-kind (PIC) instruments have gained popularity as companies face rising interest rates that complicate their ability to service debt. These instruments allow borrowers to pay interest by adding to the principal rather than using cash, providing increased flexibility amid financial pressure. This trend has been particularly evident in the private credit space, where the relationship between lenders and borrowers enables such arrangements, thereby preventing defaults and fostering support between parties. While beneficial, the rise of PICs can also raise concerns about the financial health of borrowers, as their increased use may signal stress to the market.