Interest mechanic whereby the issuer or borrower can determine (based on a pre-agreed and documented formula), at each interest payment date whether they are able to pay the interest due in cash. In case the issuer or borrower does not have the means to pay in cash, then the interest is capitalized and added to the principal amount of the debt outstanding (same as for a PIK instrument).
See also: Payment-in-Kind (PIK) Instrument, (PIK) Toggle Instrument