What is a PIK facility?

What Is Payment-in-Kind (PIK)? Payment-in-kind (PIK) is the use of a good or service as payment instead of cash. Payment-in-kind also refers to a financial instrument that pays interest or dividends to investors of bonds, notes, or preferred stock with additional securities or equity instead of cash.

How does a PIK loan work?

PIK loans are a form of debt where the borrower pays interest as additional debt, rather than cash. Depending on how the PIK debt is structured, on each interest payment date the accrued interest is either added to the principal or is 'paid' by the issue of additional loan notes or bonds.

What is a PIK structure?

It is a form of mezzanine debt that lessens the financial burden of making cash coupon payments to investors. On the dates when the coupon payments are due, the bond issuer pays the accrued interest on the PIK debt by issuing additional bonds, notes, or preferred stock.

Is PIK debt or equity?

PIK, or payment-in-kind, interest is the option to pay interest on debt instruments and preferred securities in kind, instead of in cash. PIK interest has been designed for borrowers who wish to avoid making cash outlays during the growth phase of their business.

What is Pik fee?

PIK Fees means the payment-in-kind of the Undrawn Commitment Fee by increasing the outstanding principal amount of the Loans.

3 Statement Impact - Debt + Paid-In-Kind (PIK) - Investment Banking Interview Qs

Is Pik tax deductible?

(Note that the coupon on preferred equity, whether paid in cash or PIK, is not deductible for US federal income tax purposes.)

How is PIK interest calculated?

To calculate the PIK interest, the formula consists of the PIK interest rate being multiplied by the beginning balance of the applicable debt security or preferred equity.

How is PIK interest taxed?

Unlike most business loans, though, the interest on a PIK loan isn't actually paid in cash during the loan term. Instead, the borrower supplies the interest in non-cash form. Even so, as long as the loan is used for business purposes, the value of PIK interest should be tax-deductible.

What does Pik mean in accounting?

Payment-in-kind (PIK) is the use of a good or service as payment instead of cash. Payment-in-kind also refers to a financial instrument that pays interest or dividends to investors of bonds, notes, or preferred stock with additional securities or equity instead of cash.

What is PIK spread?

PIK Spread means the difference between the interest accrued and the interest previously paid under the Existing Credit Facility.

What is Pik mezzanine?

Pay-In-Kind interest, whose acronym PIK is most commonly used in mezzanine debt circles, is a periodic form of payment in which the interest payment is not paid in cash but rather by increasing the principal amount of the security in the amount of the interest.

What is mezzanine financing?

Mezzanine financing is a hybrid of debt and equity financing that gives the lender the right to convert the debt to an equity interest in the company in case of default, generally, after venture capital companies and other senior lenders are paid.

Is payment in kind taxable?

The IRS (Internal Revenue Service) calls the PIK a bartering income. The persons, who get earning by bartering, are required to add it in their income tax and report the tax return authorities.

What is senior debt financing?

What Is Senior Debt? Senior debt is borrowed money that a company must repay first if it goes out of business. Each type of financing has a different priority level in being repaid if the company goes out of business.

What is PIC stand for?

The acronym PIC stands for "peripheral interface controller," although that term is rarely used nowadays.

Are PIK dividends taxable?

Common stock PIK dividends generally are not taxable to the recipient under IRC Section 305 unless one of the exceptions applies. Some exceptions, for example, may include i) any stockholder can elect to receive the distribution either in stock or property (including cash), and ii) the distribution is disproportionate.

Is unpaid interest taxable?

The continuing use by Borrower of amounts of money to which entitled, whether principal or accrued but unpaid interest, is subject to taxation under section 956 through the inclusion of all such amounts in United States property.

Does Pik show up on income statement?

Although cash interest expense will change when we add the PIK functionality, total interest expense will not change. We still have to include PIK interest in the income statement, etc. Remember PIK interest is a noncash expense, since it's being paid with more debt instead of cash.

Do you accrue interest on cash basis?

Cash-basis corporations.

A cash-basis corporation usually deducts an expense in the year the expense is paid. However, interest expense cannot be deducted until it “economically accrues.” Interest expense accrues on a daily basis over the life of the loan.

Can dividend be paid in kind?

Dividend can only be paid in cash and not in kind. Dividend is required to be paid by the company to the registered shareholders or other persons as mentioned above to his order or to his banker.

What is an example of an in kind payment?

Examples for payment in kind may be room and board in exchange for home or grounds maintenance or company stock or other securities instead of cash in a retirement plan. A loan is referred to as 'paid in kind' when a similar article is returned by the borrower.

What does it mean to pay someone in kind?

(of payment) given in the form of goods or services and not money: She wouldn't take any money but said I could pay her in kind by lending her the car. formal. If you do something in kind, you do the same thing to someone that they have just done to you. Paying money.

What is a unitranche facility?

What is a unitranche facility? Typically, a unitranche facility is a single tranche term loan with a blended senior/junior interest rate. It is usually documented in a single loan agreement.

Is mezzanine debt or equity?

Mezzanine debt bridges the gap between debt and equity financing and is one of the highest-risk forms of debt. It is senior to pure equity but subordinate to pure debt.

Why do companies use mezzanine financing?

Mezzanine loans assist in generating more capital for a business in addition to allowing it to increase its returns on equity and show a higher bottom-line profit. Mezzanine loans typically do not require payment during the term of debt, only at the end of the term. This enables a company to improve its cash flow.