Well, you'd be surprised how many of the "big, fat boys" wouldn't touch this stuff with a bargepole...
I did some reading. Isn't it for all practical purposes a bond that pays its interest with more bonds (like a stock paying a stock dividend)? What makes it toxic? Seems like a version of a zero coupon bond.
I believe it is just added to the principal on the bond essentially. So a 10% PIK bond/Loan on a million they would owe you $1.1m after year one then $1.21m year 2. It compounds against them essentially, but they don't have to pay you anything until maturity. Not 100% on that, but from what I've read that is how they are typically structured.
It's just that this sorta thing is normally associated with a spiral into distress. Once you PIK, you're not very likely to come back to normality. That means that there are lots of devils in details and everything is on a case-by-case basis. Needless to say, this isn't good for turnover, liquidity etc etc... As someone put it, "First they pay, then they PIK and then they die."
Eventually, yes... I am not sure if all the craziness and the hatred of supporters was worth it in the end.
Supposedly, there are some preferred stocks out there that behave like PIK bonds. Not my area of interest, though.