Principles of Finance: Unit 5, PIK

PIK, or Payment in Kind, is the payment of interest or dividends using securities rather than cash. Keeps the ol' wallet from getting unwieldy.

CoursesFinance Concepts
Principles of Finance
FinanceFinancial Responsibility
Personal Finance
Finance and EconomicsPrinciples of Finance
LanguageEnglish Language
Life SkillsPersonal Finance
SubjectsFinance and Economics

Transcript

00:26

can pay in stock and that's the in-kind part so if a company has a stock trading

00:31

at 20 bucks a share and owes twenty million dollars in interest payments in [Man discussing example company's stock price and interest owed]

00:34

a given period if it has a PIK feature or option it can choose to pay that

00:38

dividend in that period with a million shares of its stock is that a good idea?

00:43

a bad idea well think about the message it sends it essentially means

00:47

that the company thinks its stock is overpriced at 20 bucks a share and is [Stock price stamped overpriced]

00:51

choosing to dilute itself rather than pay the cash interest it owes so usually

00:56

not a good idea if you're an equity holder you'd imagine that the company's

01:00

stock would go down the day they announced that PIK option by the way so

01:04

and it goes down to what 18 and at 18 a share instead of that payment costing

01:09

them a million shares, then it cost them 20 million divided by 18....1.11

01:13

million shares and yes it's a vicious cycle so PIK situations have to be

01:18

carefully thought through or they really mess up the long-term prospects of a

01:23

company [Man discussing PIK situations]