Corporate Finance: Loans and Credit Agreements

An amortizing term loan, also known as a A-term loan or TLA, features a progressive repayment schedule that usually lasts six years or less.

A letter of credit facility primarily serves to provide a line of credit for financing international trade.

The risk is that a bankruptcy court may collapse the holding company with the operating companies, making the stock worthless.

<p>During the commitment period, the issuer pays a ticking fee for the ability to draw down credits for purchasing specified assets or equipment.</p> Signup and view all the answers

<p>A negative pledge is an agreement by issuers not to pledge any assets to new lenders to protect the interests of existing loanholders.</p> Signup and view all the answers

<p>A bridge loan provides short-term financing intended to bridge gaps until an asset sale, bond offering, or other financing occurs.</p> Signup and view all the answers

<p>An event of default is triggered by changes such as a merger, acquisition, significant equity purchases by third parties, or changes in the majority of the board.</p> Signup and view all the answers

<p>The lead arranger, or bookrunner, is responsible for managing the syndication process and is often recognized as the 'top dog' in the arrangement.</p> Signup and view all the answers

<p>The administrative agent manages all interest and principal payments and monitors the performance of the loan.</p> Signup and view all the answers

<p>Equity cures allow issuers to remedy a covenant violation by making an equity contribution, helping avoid costly amendment processes.</p> Signup and view all the answers

<p>A ticking fee is charged during the commitment period of a delayed-draw term loan for the privilege of drawing down funds later.</p> Signup and view all the answers

<p>Springing liens require borrowers to attach collateral or release it based on whether the issuer's credit rating changes.</p> Signup and view all the answers

<p>An equity bridge loan is a short-term loan expected to be repaid from a secondary equity commitment to a leveraged buyout.</p> Signup and view all the answers

<p>During a technical default, lenders can accelerate the loan, potentially forcing the issuer into bankruptcy.</p> Signup and view all the answers

<p>Private equity firms prefer equity cure provisions because they allow them to fix covenant violations without needing to undergo an amendment process.</p> Signup and view all the answers

<p>Subsidiary guarantees ensure that if an issuer goes bankrupt, all its units are responsible for repaying the loan.</p> Signup and view all the answers

<p>'Private debt' refers to the provision of credit to businesses by lenders other than banks.</p> Signup and view all the answers

<p>Private debt offers greater flexibility in loan structure and often features direct relationships between lenders and borrowers.</p> Signup and view all the answers

<p>Borrowers are motivated by the flexibility in loan structure and the ability to form long-term partnerships with private credit managers.</p> Signup and view all the answers

<p>Businesses may not fit a bank's risk appetite or existing exposure due to regulatory measures and simplified banking models.</p> Signup and view all the answers

<p>The yield spread compensates investors for the possibility of default, increasing as perceived default risk rises.</p> Signup and view all the answers

<p>Features of private credit agreements often include tailored repayment schedules and customized operational covenants.</p> Signup and view all the answers

<p>'Buy and hold' refers to the practice where private credit assets, typically loans, are not traded and held to maturity by the lender.</p> Signup and view all the answers

<p>A downgrade increases the bond's yield and decreases its price due to increased perceived risk.</p> Signup and view all the answers

<p>Private debt is increasingly recognized as an important market component for investors worldwide.</p> Signup and view all the answers

<p>A callable bond and a subordinated bond generally lead to a decrease in price due to increased risk for investors.</p> Signup and view all the answers

<p>Private debt can provide alternative financing options for businesses that do not meet bank lending criteria.</p> Signup and view all the answers

<p>If the coupon rate is higher than the prevailing yields, the bond trades at a premium; if lower, it trades at a discount.</p> Signup and view all the answers

<p>The price is calculated by discounting the future cash flows (coupon payments and face value) at the bond's yield to maturity.</p> Signup and view all the answers

<p>It indicates that the company's debt is perceived to carry 0.90% more risk than equivalent Treasury securities.</p> Signup and view all the answers

<p>A convertible bond typically has a lower yield and trades at a higher price due to its potential for equity conversion.</p> Signup and view all the answers

<p>Zero-coupon yields serve as benchmarks for discounting cash flows of the bond to determine its present value.</p> Signup and view all the answers

<p>Issuing preferred stock avoids the dilution of common equity that occurs when common stock is sold.</p> Signup and view all the answers

<p>Preferred stock dividends are considered a fixed cost, increasing financial risk similar to debt.</p> Signup and view all the answers

<p>Convertible securities can be exchanged for common stock at the holder's option.</p> Signup and view all the answers

<p>The conversion price is typically set 20 to 30 percent above the prevailing market price of the common stock.</p> Signup and view all the answers

<p>Preferred stock dividends are not deductible because they are categorized as equity rather than interest expense.</p> Signup and view all the answers

<p>The conversion ratio indicates the number of shares obtained by converting a convertible bond or preferred stock.</p> Signup and view all the answers

<p>Though firms can pass on preferred dividends, investors expect them to be paid, viewing them as a fixed cost.</p> Signup and view all the answers

<p>Passing a preferred dividend cannot force a firm into bankruptcy, unlike missing debt repayments.</p> Signup and view all the answers

<p>Mezzanine financing primarily replaces part of the capital that equity investors would otherwise have to provide.</p> Signup and view all the answers

<p>Lenders may gain equity in the business or warrants for purchasing equity at a later date.</p> Signup and view all the answers

<p>Borrowers prefer mezzanine debt because the interest payments are tax-deductible and are often more manageable due to the option of deferred interest.</p> Signup and view all the answers

<p>The two main types are finance leases and operating leases; finance leases transfer most risks and rewards of ownership to the lessee, while operating leases retain those risks with the lessor.</p> Signup and view all the answers

<p>The ownership of the leased assets remains with the lessor throughout the contract period.</p> Signup and view all the answers

<p>IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for lease assets and an interest expense on lease liabilities.</p> Signup and view all the answers

<p>Owners sacrifice control and upside potential when using mezzanine financing.</p> Signup and view all the answers

<p>Leased assets serve as inherent collateral throughout the life of the lease contract.</p> Signup and view all the answers