Mar. 13 at 4:50 PM
Investors are increasingly scrutinizing Paid-in-Kind (PIK) interest in private credit, where borrowers pay interest by adding it to their debt instead of paying cash. While lenders still record it as income, rising PIK use may signal borrower stress.
Lincoln International estimates 11% of private credit loans used PIK by late 2025, up from 5% in early 2022. More concerning is “bad PIK”—when loans switch from cash payments to PIK due to cash-flow problems—which rose to 6.4% of loans, from 2% in 2022.
At Ares Capital Corporation, about 15% of 2025 net investment income came from PIK, mostly structured at loan origination. Blue Owl Capital Corporation reported 16%, down from 24% in 2024, while Blue Owl Technology Finance reported 18%, down from 28%.
Analysts warn that when PIK is added mid-loan, borrower leverage can rise sharply, with debt levels at stressed companies reaching 76% by 2025, up from 40% in 2022.
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