Debt Finance Flashcards
(13 cards)
What is a loan facility?
A contractual agreement between a borrower and a lender that gives the borrower the right to borrow up to an agreed amount on specified terms
3 main types of loan facilities?
- Overdraft – repayable on demand; interest on drawn amount
- Term loan – fixed period; repaid at end (bullet) or in instalments (amortising)
- Revolving credit facility – draw and repay flexibly within a credit limit
What is a debt security?
A negotiable instrument issued by a company acknowledging a debt, often tradeable (e.g bonds), with repayment on maturity and interest payments during the term
Where are debt securities commonly traded?
On capital markets, however private companies must target investors directly
What is a convertible bond?
A debt security that can be converted into shares, exchanging repayment rights and interest for equity
Why are preference shares considered hybrids?
They carry equity rights but resemble debt due to fixed dividends and sometimes redemption rights - though they remail wholly equity
What is a term sheet in a loan transaction?
A non-binding summary of the commercial terms (loan amount, interest rate, key undertakings) agreed between borrower and lender
When is a loan security document required?
When the loan is secured - the documents sets out the lender’s rights over assets, often in the for of a debenture
What are the 2 meanings of ‘debentures’?
- Any debt security, including bonds or debenture stock
- In practice, a security document setting out charges over company assets
Is the debenture the same as the loan agreement?
No - loan agreement governs the loan terms, while the debenture sets out the security and is filed at CH.
What are representations in a loan agreement?
Statements of fact about the borrower’s legal or commercial status, made at signing and often repeated throughout the loan term
What are the undertakings (covenants)?
Promises by the borrower to do or not to do certain things
What is an event of default?
A trigger clause giving the lender the right to demand early repayment or take enforcement action if a representation is untrue or covenant is breached
