PIK (Payment In Kind) loans are loans that typically do not provide for any cash flows from borrower to lender between the drawdown date and the maturity/refinancing date. In PIK loans, interests generally accrue period after period, thus increasing the underlying principal. As an alternative, PIK Loans may include provisions according to which, upon the occurrence of certain events, interest payments due by the debtor become undue and the corresponding amount is added to the principal amount, so that it generates further interests. This latter type of provisions is usually included in loans granted in the context of restructuring proceedings where the borrower may not always be able to meet, in whole or in part, its obligations to pay the agreed interests as they become due.
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