Private Credit Firms Curb Payment-in-Kind Perks

Payment-in-kind, or PIK, provisions allow borrowers to add interest to a loan balance instead of paying it in cash. The feature has been widely used in leveraged transactions, including private equity acquisitions of software companies, because it preserves near-term liquidity. But it also increases outstanding debt and can compound credit risk, making its prevalence a closely watched gauge of underwriting discipline in the private credit market.

The share of new private credit loans carrying PIK terms fell to 13.5% in the second quarter of 2026, down sharply from 25% at the end of 2025, according to Lincoln International’s latest report. As loan performance deteriorates and investor scrutiny intensifies, lenders are regaining bargaining power and imposing tighter standards. The shift has also reduced the amount of debt available to some private equity-backed borrowers, particularly companies acquired through leveraged buyouts.