Take your Pik and take your chances

The issuance of payment-in-kind, or Pik, notes has grown in popularity as a means for private equity firms to fund LBOs. But investors must be aware of the unusual risks associated with this form of financing. Jean-Paul Carbonnier reports

Payment-in-kind instruments - where issuers pay a coupon in the form of more bonds, rather than in cash - have become an important funding vehicle for private equity houses over the last couple of years. Many have used Piks as bridge financing, either to help fund leveraged buyouts (LBOs) or cash out an existing investment prior to a full sale or listing.

But until now not many Pik-issuing