Borrowers Lean on Pay-In-Kind Deals as Cash Strain Grows in Private Credit Market
Borrowers of private-credit funds are increasingly postponing cash interest by issuing additional debt, a trend that signals mounting pressure on cash flows.
Research from the Boston Fed shows that pay-in-kind (PIK) arrangements have risen from 6% to 10% of assets in business development company (BDC) portfolios over the last four years. Among software firms, the share of PIK deals doubled to 13% between the end of 2022 and March. The data also reveal tighter loan pricing, indicating lenders are competing more aggressively for business.
Why it matters
Rising PIK use shows borrowers are cash-strained, raising concerns about stability in the private-credit market.
In this story
pay-in-kindprivate creditborrower cash flowBDCsoftware companiesinterest deferraltighter pricing