PIK facility meaning

This glossary sets out many of the expressions commonly used in the leveraged finance market. Words appearing in the definitions in bold are defined elsewhere in this glossary. For further banking terminology, please refer to the main Banking & Finance Glossary... Acquisition finance glossary—A Acceleration Acceleration is the formal action taken by the agent, on the instructions of the majority lenders, following an event of default, such as making a demand for early repayment of the loan. See Practice Note: Accelerating a loan for more information... Accordion feature/accordion facility An accordion, also called an incremental debt feature, is a mechanism in the facilities agreement that, provided specified conditions are satisfied (for example, pro forma compliance with a leverage test), permits those lenders under the facilities agreement who wish to do so to advance additional debt. The terms for that extra debt are typically captured in an increase notice. This accordion or incremental debt flexibility is different from structural adjustment, which usually requires the majority consent...

ARCHIVED: This Practice Note was archived and is not maintained. Leveraged finance arrangements are frequently supported by multiple funding streams. Equity and senior debt are the norm; where further funds are required, mezzanine or other junior debt (for example, second lien, payment-in-kind (PIK) or high yield notes) may be added. Mezzanine is so named because it sits behind senior debt but ahead of equity in priority. For additional detail on typical structures and financing options, see Practice Notes: Structure of a buy-out and Sources of finance. Practice Note: Introductory guide to acquisition finance provides a primer on acquisition finance, and the Glossary of acquisition finance terms and jargon defines commonly used expressions. This note offers introductory guidance on: the mezzanine facility agreement methods by which mezzanine debt can be subordinated to senior debt key intercreditor agreement points for senior and mezzanine lenders Expanded analysis of the intercreditor topics highlighted here appears in Practice Notes: Senior/mezzanine creditor intercreditor issues—document amendments...

This Practice Note sets out guidance on payment-in-kind (PIK) facilities. It covers: the principal features of PIK facilities, including a standard transaction structure key terminology the risk profile and yield associated with PIK facilities why PIK facilities may be appealing to the sponsor, and core documentary protections for PIK finance parties Key features of a PIK facility What is a PIK facility? A ‘PIK’ loan facility typically refers to debt where interest is capitalised throughout the term. In Europe, this debt is most often seen in the financial sponsor-backed leveraged finance market, provided to a sponsor’s portfolio business. PIK facilities—transaction structure The PIK loan is commonly advanced to a PIK Holdco within the sponsor’s portfolio group. PIK Holdco is usually the immediate holding company of the Parent. The Parent sits at the top of the part of the group that constitutes the ‘banking group’ for the purposes of the senior debt package. This is depicted in...