KBRA releases research that examines the use of paid-in-kind (PIK) interest in corporate portfolio finance.

The use of PIK interest has increased as borrowers facing liquidity challenges have started deferring and capitalizing all or a portion of their interest payments via amendments, while borrowers with stronger credit fundamentals have proactively negotiated PIK optionality with lenders to enhance financial flexibility. For private credit (PC) and middle market loan (MML) PC/MML collateralized loan obligations (CLO) and facilities, these trends have translated into larger partial PIK concentration buckets, often with multiple subcategories tied to minimum cash pay thresholds and varying limits. PIK definitions, allowances, and disclosure practices vary by manager and underwriting platform and often require a detailed review of the underlying credit agreement. This KBRA report discusses recent market developments, key terminology, documentation considerations, and credit considerations for CLOs and facilities backed by loans with PIK optionality.

Click here to view the report.

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About KBRA

KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

Doc ID: 1013452

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