Also known as PIK. In the case of bank loans, a feature whereby the interest is added to the principal balance of the loan (referred to as capitalized) instead of being paid to the lender in cash (called cash-pay interest).

In the case of other securities, a feature whereby the interest (in the case of debt securities) or dividends (in the case of equity securities) is paid by issuing additional securities of the same type.

For more information, see Practice Notes, Mezzanine Finance: Overview and Preferred Stock in Private Equity Transactions: Significant Tax Issues.