Buzzword: Payment-in-kind note

A rude awakening brings us this week’s Marketplace Money buzzword: Payment-in-kind note.

A payment-in-kind note is when a company uses a bond, instead of cash, to pay interest they owe. Kind of like paying a debt with an IOU. Well, very kind indeed!

Payment-in-kind notes are usually given by large private equity firms to investment bankers that lend them money. But thanks to the credit meltdown, more of these notes are being refused. And Standard & Poor’s says banks accepting them might not get their money’s worth. That’s what you get for depending on the kindness of strangers.