Payment In-Kind (PIK) securities are financial instruments (for example, bonds, notes, preferred stocks) that pay all or part of the periodic interest or dividends in cash or securities. There are about 60 such securities currently in existence today. Payment in Kind securities are known as "Bunny Bonds" in the European market.
If issuers mandate the distribution of the income as cash, the system posts a Coupon as it does for other bonds. No Corporate Action setup is required for this option.
Through a Corporate Action Announcement published prior to the Coupon Payment Date, the issuers can mandate the distribution of the income as cash, securities, or a combination of bothcash and securities. If the company decides to pay in kind, the issuer gives the entitled holders an additional Baby Bond to facilitate separate trading on the portion of the bond that is attributable to accrued interest. The Parent Bond and the baby bonds are considered fungible for trading purposes. If the company decides to pay in cash, the cash dividend is given to the holder based on the rate of interest supplied in the corporate action.
Standard cancel rollback and replay processing apply applies to transactions generated by this corporate action.
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