Private Credit’s Record CLO Issuance Is Raising Concerns

As private credit funnels into collateralized loan obligations at a record pace, investors and analysts are grappling with a type of controversial debt entering the market as part of the boom: payment-in-kind.

Private credit CLOs have a greater share of PIK provisions — which allow borrowers to defer cash interest payments and tack them onto the loan balance — compared to the loan portfolios that back traditional CLOs. And in recent years, PIK use has been on the rise.

“Generally speaking, PIK starting at origination of a deal has upticked in private credit,” Alexander Dennis, a managing director at Capital ...