Home Private Credit The Hidden Risks of Payment-in-Kind
Author: Anthony Noto | Photos: Shutterstock
Liquidity relief today, balance-sheet strain tomorrow: The very structures that make private credit nimble—PIK loans—could also mask risk until it’s too late.
When GoHealth Inc. filed for Chapter 11 bankruptcy protection on June 7, the writing had been on the wall for two years. The Chicago-based health insurance marketplace had inked a payment-in-kind (PIK) deal to preserve liquidity only to collapse under the weight of more than $1 billion in debt.
For GoHealth’s lenders , including Blue Owl Capital, one of the largest private credit managers, it was a familiar scenario — allow a portfolio company to defer cash interest payments and roll them into its debt balance. This preserves liquidity during uncertain times. For GoHealth, the PIK agreement preceded a critical Medicare enrollment cycle.
Liquidity deteriorated, Medicare Advantage pressures persisted, and GoHealth—once valued at $6.6 billion—ran out of runway. By late last year, lenders had placed the company’s loans on nonaccrual status. By the time GoHealth filed for bankruptcy protection, the PIK arrangement had become just another case study in a growing private-credit risk: debt structures that postpone distress while quietly deepening it.
“PIK is like a double-edged sword,” said Lakshmi Ganapathi, founder of Unicus Research in Ridgefield, Connecticut. “Borrowers seem to love PIK toggles in good times because it preserves the cash, but under stress, the accruing principal at a compounding rate becomes a balance-sheet problem. It’s attractive until it’s not.”
GoHealth and Blue Owl did not respond to requests for comment.
GoHealth is hardly alone. P3 Health Partners restructured its term loan last year into a cash-and-PIK arrangement, requiring borrowers to pay a portion of interest in cash while adding the remainder to principal. This preserved liquidity but increased leverage over time. The Henderson, Nevada-based healthcare provider now has $380 million in long-term debt at double-digit interest rates.
In some cases, the outcome is more dramatic. Software company Pluralsight, owned by Vista Equity Partners, was ultimately handed over to a consortium of private credit lenders, including Blue Owl, Ares, Golub, Oaktree, Goldman Sachs, and BlackRock. Efforts to manage Pluralsight’s debt burden proved insufficient, and Vista wrote off roughly $4 billion in equity.
“There’s a through-line across all of them,” Ganapathi told Global Finance. “A borrower under cash-flow strain defers an obligation, whether through PIK, an amendment, or a liability-management exercise.”
The deferral increases the debt burden or postpones the reckoning, and the resolution is a lender-led restructuring in which the equity is wiped out or impaired and the debt holders take control.
“The 2026 cluster is concentrated in healthcare and software, where higher-for-longer rates met business models underwritten on cheaper money,” she added.
In a post-bank-crisis world of high interest rates and tightened underwriting standards, private credit has stepped into the void. But the very perks that make it nimble — like PIK loans — can be foreshadowing: a bankruptcy filing that simply formalizes what the PIK plan already implied.
Firms like Blue Owl Capital have exposure across a range of heavily leveraged software, technology, and financial borrowers, s…