Products and Financings Flashcards
“A” Loan
Another name for a Facility A Loan.
ABL
Asset-Based Loan.
Accordian Feature
An Incremental Facility that allows the Borrower to increase the maximum commitment amount under a Revolver or to incur additional Term Loan debt under the Facility Agreement. Contrast with Side-Car.
Acquisition Facility
A Delayed Draw Term Facility intended to be used to fund acquisitions. Often combined with a Capex Facility.
Amortising Loan
A Term Loan that amortises, usually a reference to a Facility A Loan.
Ancillary Facility
A Facility made available on a bi-lateral basis by a Lender using mechanics established under a Revolving Facility and which reduces that Lender’s commitments under the Revolving Facility accordingly. Established for operational ease when a Revolving Facility has been Syndicated since Ancillary Facilities are typically of a type such that they are best made available bi-laterally — examples of such facilities include overdrafts, short-term loan Facilities and foreign exchange facilities. Much more common in Europe than Swing Line Loans, which are more frequently seen in the US.
Asset-Based Loan
A Revolving Facility where the total amount that can be borrowed fluctuates based upon the value of the Borrowing Base at a given time. Asset-based lending is a way for companies to meet their short-term cash needs by borrowing against their short-term assets at favourable rates. Asset-Based Loans are particularly popular among retailers, oil and gas Issuers and other businesses with large amounts of accounts receivable and inventory but can be tricky (and therefore expensive) to structure in Europe given the difficulties in some jurisdictions in taking Security over the categories of assets used for the Borrowing Base. The Asset-Based Loan market in the US is therefore significantly more developed than it is in Europe. See Borrowing Base and Borrowing Base Loan.
“B” Loan
Another name for a Facility B Loan.
Back to Back Financing
A Facility that is made available to a Borrower through another Lender and (often) where the terms of the two loans match, i.e., Lender A lends to Lender B that, in turn, lends to the Borrower.
Bank Guarantee
An undertaking from a bank to cover a debt, risk or liability on a transaction. In other words, if the debtor fails to settle a debt, the bank will cover it. Like a Letter of Credit.
Bank-Only Deal
Financing consisting only of bank debt (i.e., no Bridge Facility or Securities).
Best Efforts Deal
In Capital Markets, the Initial Purchasers, Managers or Underwriters may be engaged to use their “best efforts” to sell the Securities, but Best Efforts Deals do not require that the Initial Purchasers, Managers or Underwriters guarantee that it will be able to sell the Securities on any particular terms or at a certain price and relieves them from any responsibility to purchase any unsold Securities. In loan world, usually a reference to a deal which involves a Best Efforts Syndication.
Best Efforts Syndication
A Syndication where the Arranger commits to provide less than the entire amount of the loans (or even none of them), but agrees to use its “best” efforts (subject to agreed conditions) to find Lenders to provide the loan. Traditionally used for risky Borrowers, and in complex transactions, Syndications in bad markets or in other circumstances (such as Refinancings) where the Borrower doesn’t absolutely need the money by a certain time and would prefer not to pay the higher fees associated with committed financings.
Bilateral Facility
A Facility with just one Lender that is not intended to be Syndicated.
Bill of Exchange
A written, unconditional order by one party (the “drawer”) to another (the “drawee”) to pay a certain sum, either immediately or on a fixed date, to the order of a specific person, or the bearer. A Bill of Exchange is a Negotiable Instrument.
Bill of Lading
A document acknowledging that specified goods have been received as cargo for conveyance to a named place for delivery. The Bill of Lading serves as a receipt from the carrier that items have been received for shipping. If a Bill of Lading is issued “to order” of the recipient of the goods, then it is a Negotiable Instrument.
Bonds
Debt instruments that represent a fixed principal amount of money and typically a fixed (or floating) Interest Rate. Also known as Notes, Securities or Debentures. In offerings governed by the laws of a state in the US, these puppies are almost always issued pursuant to an agreement known as an Indenture, but are usually issued pursuant to a Trust Deed or Fiscal Agency Agreement (in each case containing the Terms and Conditions of the Bonds) with respect to English law governed offerings. See also Fixed Income Security.
Borrowing Base
A concept in an Asset-Based Loan where the maximum amount available for borrowing under a Revolver constantly changes. When there is a Borrowing Base, the maximum amount available for borrowing moves based on the Base Currency value of certain eligible categories of Collateral (e.g., receivables, inventory, equipment) multiplied by a discount factor less a reserve reflecting priority claims, and subject to an overall Cap. For example, Lenders might agree to advance funds against 80% of eligible accounts receivable and 60% of eligible inventory up to a maximum amount of €100 million. So the amount available on any date is the lesser of the amount of the Borrowing Base and the maximum revolving commitment amount (minus amounts already borrowed and outstanding). See Asset-Based Loan and Availability.
Borrowing Base Loan
Another name for an Asset-Based Loan.
Bought Deal
An offering of Securities in which one or a few Underwriters buy the entire issue at a fixed price before a formal marketing process has commenced. See Backstop.
Bridge Facility
A Facility pursuant to which Lenders make Bridge Loans. In a committed financing, each series of Notes contemplated to be part of the permanent financing structure is backed up by a Bridge Facility, so in instances where there is more than one series of Notes (for instance, senior and senior secured), there will be multiple Bridge Facilities.
Bridge Loans
Short-term loans that are not typically (although not always) intended to be funded. The purpose of a Bridge Loan is to provide a bidder with committed financing in the context of an auction for a business in case the Notes offering contemplated as part of the acquisition financing cannot be consummated prior to the consummation of the acquisition (i.e., to “bridge” the gap in financing). Traditionally, Bridge Loans are used by Financial Buyers (Sponsors) in auction situations, but corporate buyers also sometimes use Bridge Loans to finance acquisitions. Bridge Loans typically have an initial maturity of one year, which automatically converts into a longer maturity Term Loan which can, in certain circumstances, be “flipped” into Exchange Notes.
“C” Loan
Another name for a Facility C Loan.
Call Option
A financial contract between a buyer and a seller, where the buyer has the right (but not the obligation) to buy a specific quantity of a Commodity or a Security or other financial instrument from the seller at a specified time and at a specified price. Also describes the option of an Issuer to redeem its outstanding Bonds on a date earlier than the Maturity Date following the Non-Call Period as described in the Terms and Conditions or the Indenture. Compare Put Option. See also Option.
Capex Facility
A Delayed Draw Term Facility intended to be used to fund Capex. Often combined with an Acquisition Facility.
Capitalised Lease
A lease where the lessee assumes some of the risks of ownership and enjoys some of the benefits. In accounting terms, a Capitalised Lease is recognised as both an asset and a liability (for the lease payments) on the balance sheet. Indicators that a lease is a Capital Lease include the transfer of ownership to the lessee, or an Option to purchase the leased property, at the end of the term. Also called a “finance lease”. Leases that are not Capitalised are called “operating leases”.
Cash Flow Revolver
A Revolving Facility that provides the Borrower with a line of credit up to a fixed amount, in contrast to an Asset-Based Loan, which is based on the value of certain categories of the Borrower’s assets as of a given time. A Cash Flow Revolver typically contains fewer ongoing reporting requirements than an Asset-Based Loan. In a Cash Flow Revolver, the Lenders will focus on a Borrower’s ability to cover debt service by generating cash flow, whereas in an Asset-Based Loan, the Lenders will focus on the value of certain categories of the Borrower’s assets (in particular, the categories that are used in the Borrowing Base), especially the liquidation value of those assets, relative to the Lenders’ exposure under the loans (this is known as Collateral coverage).
Club Deal
Historically, a smaller loan premarketed to a group of relationship banks which agree to Take and Hold the loans from the outset with no intention to reduce the commitment to lend through a subsequent Syndication. More common in Bear Markets as banks do not want to take underwriting risk. The term Club Deal can also refer to a very large Sponsor LBO transaction where multiple Sponsors pool together in order to buy a multibillion dollar company.
Commercial Letter of Credit
A Letter of Credit the purpose of which is to provide a means of facilitating payments between parties in the normal course of business. Commercial Letters of Credit are therefore intended to be drawn on and used routinely by the parties. Compare Standby Letter of Credit.
Commercial Paper
An unsecured debt instrument issued by a company to finance short-term liabilities. Commercial Paper has a maturity of less than one year from the date of issue.
Convertible Bond
A Bond that is convertible into another Security, typically Ordinary Shares.
Convertible Preferred Equity Certificate
PECs that are convertible into Equity interests.
Covered Bonds
General non-deposit obligation Bonds of the issuing bank secured by cash flows from mortgages or public sector loans that remain on the bank’s Balance Sheet. This is essentially a corporate Bond with recourse to a pool of assets that “covers” the Bond if the Issuer becomes insolvent; the Issuer must continuously ensure that the asset pool sufficiently backs the Covered Bond and, upon default, the investor has recourse to both the pool and the Issuer. If the issuing bank becomes insolvent, the assets in this pool are separated from the issuing bank’s other assets solely for the benefit of the covered Bondholders. Covered Bonds are similar in many ways to residential mortgage Asset-Backed Securities, with the major difference being that the loans backing a Covered Bond are also guaranteed by the bank.
CPEC
Convertible Preferred Equity Certificate
Credit Agreement
Another name for a Facility Agreement.
“D” Loan
Another name for a Facility D Loan.
Daylight Facility
A Facility which is borrowed and repaid on the same day, most commonly used to facilitate intra-group reorganisations.
Delayed Draw Term Facility
A Term Loan Facility that is available to be drawn, usually subject to a list of specified conditions, at a certain point subsequent to the Closing Date, or at various times for a period subsequent to Closing. A Delayed Draw Term Facility is often intended to be used for acquisitions or Capital Expenditure programmes. See Acquisition Facility and Capex Facility.
Discount Notes
Notes that are issued for less than their face amount (Par Value). The important thing to remember is that although the Notes are issued below their face amount, the Issuer owes the face amount of the Notes when they mature. This means a holder of the Discount Note receives a return both off the Interest payment or Coupon (if there is one) and by having paid less than it will receive back at maturity. A Discount Note has an Accreted Value on the date it is issued equal to what was paid for it. The Accreted Value creeps up over time to equal the Par Value of the Note. This creeping is called “accreting” and is treated as Interest expense to the Issuer and Interest income to the Bondholder.
Disqualified Stock
Any stock which is or could be redeemable prior to the maturity date of the Bonds plus a number of days (typically 91 days).
Distressed Debt
Debt trading (well) below Par due to concerns about the financial health of the Borrower. See Loan To Own.
Distressed Exchange Offer
An Exchange Offer for the debt Securities of a company that is undergoing financial hardship and likely will not make its next Interest payment without undergoing a debt restructuring.
Drive By
Outside of the criminal context, a Bond deal that is priced the same day it is announced (with very limited marketing).
Dual Currency Bond
An issue of Securities denominated in one currency but where Interest and/or principal is repayable in another currency.
