PIK Toggle
A payment-in-kind toggle feature in subordinated debt that gives the borrower the OPTION (sometimes unilateral, sometimes negotiated) to pay an interest period's coupon in additional debt notes rather than in cash. PIK rates are typically 100-200 bps higher than the matched cash-coupon rate (the company pays a premium for the flexibility). Structural intent: bridging tool for brief cash-flow disruptions. Practical signal: repeated PIK elections (two or more consecutive periods) are a strong distress signal, indicating the company cannot service the mezz coupon from current FCF and is capitalizing interest into growing principal — a debt-spiral pattern.
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