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Payment-in-Kind Interest Terms in Private Credit: Negotiating and Drafting, Structures, Benefits, Potential Pitfalls

A live 90-minute premium CLE video webinar with interactive Q&A

This program is included with the Strafford CLE Pass. Click for more information.
This program is included with the Strafford All-Access Pass. Click for more information.

Thursday, April 17, 2025

1:00pm-2:30pm EDT, 10:00am-11:30am PDT

Early Registration Discount Deadline, Friday, March 28, 2025

or call 1-800-926-7926
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This CLE webinar will discuss the growing popularity of payment-in-kind (PIK) interest features in private credit facilities. The panel will explore common PIK structures, highlight the benefits and risks associated with PIK interest terms, and provide practical guidance for negotiating and drafting these terms in new and existing loan agreements.

Description

PIK interest provisions allow borrowers to add interest to the loan principal instead of making cash-based interest payments at regular intervals. Due to their flexibility and convenience, PIK interest terms have become a growing trend in the private credit market because they permit sponsors and borrowers to incur their desired amount of leverage without sacrificing their liquidity position.

While there are many variations of PIK interest provisions, most provisions fall into one of three categories: true PIK, contingent PIK, or a PIK toggle, which is the most common type of PIK and allows borrowers to switch between PIK interest and cash pay interest based on predefined performance metrics. A fourth PIK tool that has been gaining some traction is the synthetic PIK structure which allows borrowers to pay interest in cash through a separate synthetic interest payment facility that functions as a capital reserve for PIK interest payments.

While PIK interest terms can be beneficial to borrowers, lenders, and equity holders, there are key considerations for all parties involved. Counsel must understand the potential risks and pitfalls that can arise with PIK interest terms and the importance of precise drafting to ensure their client's interests are protected over the life cycle of the loan.

Listen as our expert panel explains the benefits of PIK interest terms, the complexities and potential risks, and key drafting and negotiation considerations.

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Outline

  1. Background: PIK interest provisions in today's market
  2. Circumstances when PIK provisions are used
  3. Types of PIK interest terms and their key features
    1. True PIK
    2. Contingent PIK
    3. PIK toggle
    4. Synthetic PIK
  4. Triggers, toggles, premium payments, and availability periods
  5. Benefits of PIK interest provisions
  6. Potential pitfalls to avoid
  7. Strategic considerations for borrowers, lenders, and equity holders
  8. Negotiating and drafting tips
  9. Practitioner pointers and key takeaways

Benefits

The panel will discuss these and other key considerations:

  • How have current market conditions created a rise in the number of PIK interest loans?
  • What are the various forms of PIK interest terms and what are their key features?
  • What are the benefits and potential pitfalls with PIK interest loan terms?
  • What are key considerations for negotiating and drafting PIK interest provisions from both the borrower's and lender's perspective?

Faculty

Post, Jennifer
Jennifer Post
Partner, Co-Chair Emerging Companies Group
Thompson Coburn

Ms. Post serves as primary outside counsel to entrepreneurs, venture capital funds and operating companies with an...  |  Read More

Additional faculty
to be announced.
Attend on April 17

Early Discount (through 03/28/25)

Cannot Attend April 17?

Early Discount (through 03/28/25)

You may pre-order a recording to listen at your convenience. Recordings are available 48 hours after the webinar. Strafford will process CLE credit for one person on each recording. All formats include course handouts.

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