Here’s a number from a private credit fund’s latest quarterly report. At Golub Capital Private Credit Fund, loans that allow part of the interest to be paid as PIK interest grew from about $1.09 billion to $1.65 billion in nine months, from September 2025 to June 2026. Part of that is simply the fund getting bigger. But to see why regulators care, you first need to know what PIK means.
The friend who pays with an IOU
Imagine you lend a friend $100 at 10% a year. At the end of the year, your friend says, “I don’t have $10 right now. Just add it to what I owe.” Now your friend owes you $110. On paper, you earned $10. In your wallet, you got nothing.
That’s PIK. It stands for “payment in kind.” The borrower pays interest with more debt instead of cash. The lender still records the interest as income.
This isn’t always a bad sign. Some loans are designed this way from day one. A fast-growing company may want to keep its cash for hiring or building. And in Golub’s case, only $4.8 million of those PIK loans had stopped paying interest at all.
But PIK can also hide trouble. A borrower that can’t pay in cash can still “pay” on paper. The fund’s income looks smooth. The cash never arrives.
Why the SEC stepped in
Private credit means loans made by investment funds instead of banks. These loans don’t trade on an exchange, so there’s no market price. The fund estimates the value itself, and that estimate becomes the return investors see.
This used to be a market for big institutions. Now more ordinary investors can buy in. Private credit held by registered funds rose nearly 60%, from $170 billion at the end of 2020 to $270 billion at the end of 2025.
On Sept. 28, SEC staff published a statement on how these assets are valued. It isn’t a new rule. It’s a reminder of rules that already exist. But it names PIK interest directly. Funds should explain how much of their reported income comes from PIK and how that share is changing. As American Banker noted, a growing share of PIK income may point to higher credit risk.
What to look for next quarter
If you own a private credit fund, or a BDC (a listed or non-listed company that makes these loans), check three things in its next report:
- What share of total interest income is PIK interest?
- Is that share going up?
- How many loans are on “non-accrual,” meaning the fund has stopped counting their interest at all?
If income rises but cash interest doesn’t, that’s the question to ask. Private credit is also part of the bigger borrowing wave we pieced together in AI Debt Bubble.
My take: Money you never received still shows up in your yield.
Not advice. Just how I see it.