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Generically, a kicker is a condition that causes some kind of increase or augmentation. In investing, kicker is most often used in terms of an equity kicker for some form of debt. Debt without an equity kicker does offer investors the advantage of guaranteed payments, but no opportunity to participate in the success of the company. By including an equity kicker in the form of stock rights, warrants, or some other equity feature, the equity kicker makes the security more attractive to investors. Assuming the equity kicker at some point is converted into stock, the investor can receive dividends or benefit from capital appreciation. For the issuing company, an equity kicker reduces service costs, because investors are willing to forego some guaranteed interest in return for the equity kicker. In fact, the equity kicker may be a de facto requirement where companies are new or struggling and can only sell debt by including an equity kicker. Debt with an equity kicker is subordinated debt and is usually relatively more risky than ordinary debt. From an accounting standpoint, an equity kicker raises numerous issues, since the hybrid security it creates is not easily classified as either debt or equity. |
