ShmoopTube

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Principles of Finance a la shmoop pik.... this isn't something you do to your

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nose hopefully in private anyway nor is it [Person picking their nose]

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something you set on a basketball court rather PIK stands for payment in kind

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and has nothing to do with being nice so bonds have the option the company's

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option to instead of paying the interest or principal in cash well sometimes they

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

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

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

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

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

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

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

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

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

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

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

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

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

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company [Man discussing PIK situations]

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