A business development company is a listed or registered lender that must report every loan it holds, quarter by quarter, to the SEC.1 There are 165 of them. Together they hold $371.7bn of term loans to 7,316 borrowers, which makes their filings the best public view of private credit there is.
Each holding reports its rate. Some report two: a cash rate, paid in money, and a PIK rate, paid in kind. Interest paid in kind is not paid at all. It is added to the loan, so the borrower owes more next quarter than it did this one.
Interest paid in kind is a loan to pay the loan.
PIK is not always a sign of trouble. Some loans are written that way from the start, for borrowers whose cash goes into growth. But a PIK option that a borrower begins to use, or one added in a renegotiation, usually means cash is short. Either way, a lender taking more of its return in paper is a lender taking more risk.
At the 156 BDCs that reported in both quarters, loans with a PIK rate made up 9.91% of term loan principal at 31 March and 10.32% at 30 June. The median PIK rate on those loans was 3.75 percentage points.
The striking thing is who uses it. Among borrowers owing BDCs less than $10m, 7.9% have a PIK term loan. Among those owing more than $500m, 20.3% do.
That runs against intuition. Larger borrowers are larger companies, usually owned by private equity, with lenders who compete hard to hold their debt. They are also the ones whose sponsors have the most to gain from keeping cash in the business, and the most leverage to ask for it. A small company that cannot pay its interest tends to be restructured. A large one tends to be given time.
For a company raising debt, the point is that the option exists and is widely used. For an investor in a BDC, the point is that a tenth of the book is paying in promises, and the share went up last quarter.
Method. Term loans held by BDCs in the SEC's BDC data sets for the quarters to 31 March and 30 June 2026. The same-store comparison uses the 156 BDCs that reported in both quarters. A loan counts as PIK if it reports a PIK rate above zero. Borrowers are matched across BDCs by name and grouped by their total BDC term loan principal at 30 June. Positions with implausible reported principal (the result of unit errors in a filing) are excluded.
“Interest paid in kind is a loan to pay the loan.”
Sources
- Business Development Company data sets, US Securities and Exchange Commission, quarters to 30 June 2026
Cite as: “A tenth of private credit pays in kind”, Norvian Review, 29 September 2026.