Asia Private Credit Lenders Adopt PIK Features as Rates Stay High

Asia’s private credit lenders are increasingly adopting payment-in-kind (PIK) structures as higher-for-longer interest rates, tighter bank capital rules and shallow bond markets squeeze borrowers’ cash. Previously used mainly in distressed and mezzanine deals, PIK is now emerging in senior direct lending, allowing interest to accrue to principal or convert to equity to preserve liquidity while increasing leverage. Variations include holdco PIK, split PIK and toggle PIK, with some borrowers requesting fully PIK loans. Lenders are mitigating risk through collateral, tight reporting and financial covenants while testing borrowers’ capacity to absorb back-ended obligations. Demand is rising from capital-intensive sectors such as logistics infrastructure and data centres, while banks launch private-credit funds off balance sheet to participate in growth.