Broadly Syndicated Loans Incorporate PIK as Private Credit Spreads Tighten

Banks are beginning to add payment-in-kind features to broadly syndicated loans as they work to remain competitive with direct lenders, according to a recent Moody’s market report.

“As competition between financing markets increases, broadly syndicated lenders and high yield creditors are vying to offer borrowers the same structural features obtainable with private credit,” the Moody’s analysts wrote.

Moody’s said PIK features appeared this year in a $6.5 billion syndicated deal supporting the buyout of Skechers and in at least one bank-led refinancing of private debt over the summer.

While often cheaper than private credit, bank-led offerings tend to lack the flexibility provided by direct lenders. If syndicated deals do see wider adoption of PIK options, it could level the playing field with direct lenders and halt some of the rapid gain in market share they’ve experienced in recent years.

“While we have yet to see a wave of rated PIK financings, PIK features are pressing their face against the glass, so to speak, and are poised to burst through,” Moody’s said. The agency also said wider use would have ramifications for credit risk and recoveries if adoption accelerates.

But while banks are working to increase their flexibility, private credit spreads have compressed, narrowing the pricing differential versus broadly syndicated offerings.

“While LBO activity remained slow in 2024 and into 2025, the reopening of the BSL market, coupled with ample dry powder, has caused many lenders to compete aggressively for new opportunities, leading to improved deal terms for borrowers,” notes Lincoln International in its latest private market perspectives report.

From the end of Q2 2025 to August 2025, private credit spreads have fallen from 475-575 bps to 450-550 bps, with all-in pricing now as low as 8.75%.

Original issue discounts have also remained historically tight, between 1 and 1.5%, with some deals forgoing an OID entirely as competitive pressures drive lender discounts.

While debt financing options across the board are becoming more attractive to sponsors, Lincoln warns against a jump in what it calls ‘Bad PIK’, or instances in which a PIK feature has been added to an existing facility after it initially closed — a change which indicates an amendment meant to avoid a default (by allowing the borrower to remain current by accruing PIK interest even if they are unable to pay cash interest).

With 11.4% of private credit investments featuring a PIK option and 53.3% of those options added post-close, Lincoln calculates a shadow default rate of around 6% through the end of the second quarter. This is up meaningfully from a 2021 year-end shadow default rate of just 2% (6.6% of deals featuring a PIK option, with 33.3% added post-close).