Payment in kind
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Payment in kind refers to payment for goods or services with a medium other than legal tender (anything can be used as money, but legal tender is what the State accepts for all debts). "Kind" (or sometimes kine) in this context is an archaic noun meaning cattle, from the Middle English word kyn. The term originates from a period in history when livestock were a common means of exchange.
In modern finance, when a bond pays in kind (PIK), it means that the interest on the bond is paid other than in cash. The most common form of this is for the principal owed to the bondholder to be increased by the amount of current interest. Other forms of PIK arrangements are also found, such as paying (transferring to) the bondholder an amount of stock (in the company issuing the bond or in another, typically related, company) with value equal to the current interest due.
Often such arrangements are referred to by the acronym PIK. Most bonds pay cash, not in kind, coupons.
PIK can be used as a verb (e.g. the bond "PIKed") or an adjective (e.g. that bond is "PIKable"). Where a previously PIKed amount is revoked (as is permissable in some agreements), this is known as "unPIKing".
One high profile use of PIKs involved the controversial takeover of Manchester United Football Club in England by Malcolm Glazer in 2005. Glazer used PIK loans, which were sold to hedge funds, to fund the takeover, much to the displeasure of many of the club’s supporters.
