Capitalized Interest
Interest that is added to the principal balance of a loan rather than paid in cash. The capitalized interest then accrues additional interest at the stated rate, compounding the borrower's debt obligation. PIK interest is the most common form of capitalized interest in LBO mezzanine structures. From the borrower's perspective, capitalization defers cash outflow; from the lender's perspective, it shifts cash-flow risk to the future and compounds the credit exposure. Repeated capitalization without a clear cash-flow recovery plan is a near-unambiguous distress signal.
Lessons that use this term
Related terms
Adjusted Cost Basis · Annuity · Capital Gains Distribution · Cost Basis · Dividend Discount Model (DDM) · Dollar-Cost Averaging
Open this term in the app → — no account needed; browse the full glossary while you research.