A payment-in-kind loan lets a borrower pay interest with more debt instead of cash. The interest is added to what is owed and compounds, and the rate is typically much higher than on senior loans.
What the video says
In private credit, a loan can pay its interest with more loan. It's called payment in kind. No cash goes out. The interest joins the debt. Say a company borrows a hundred million, at twelve percent. Year one, no interest is paid. Now it owes a hundred and twelve. Year two, interest runs on the interest. About a hundred and twenty-five. By year five, about a hundred and seventy-six. Nobody has paid a dollar of interest in cash. It helps the company keep its cash for now. The rate is usually far higher, because the risk is too. Then the loan comes due. All of it, at once. So why do investors care? The lender's income is on paper until the company can pay. If it can't, the losses can be big. No bill today. A bigger bill later.
In the glossary: PIK
A simple example with round numbers, not advice. Terms vary by fund.
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