Jurisdiction(s):
United Kingdom

Key definition

PIK definition

What does PIK mean? PIK (payment-in-kind) describes, in finance practice, interest that is not paid in cash as it accrues but is capitalised (rolled up) and added to the outstanding principal of the loan or notes, with the enlarged amount payable on maturity, redemption or earlier repayment. The term is a market expression rather than one defined by statute or case law, and its use is broadly consistent across England & Wales, Scotland, Northern Ireland and Ireland. PIK interest is common in leveraged finance, mezzanine facilities, holding‑company PIK notes and high‑yield instruments. Documentation typically specifies when PIK applies (mandatory or at the...

European PIK loan facilities: structure, terminology, risk/yield, sponsor rationale and documentary protections

Published by a LexisNexis Banking & Finance expert

Practice notes

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 outline below: a simplified diagram of European leveraged finance facilities incorporating PIK debt. The proceeds of a PIK facility may be taken in full at closing to help to...

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Web page updated on 21/05/2026

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