Corporate Finance: Loans and Credit Agreements

A term loan with a repayment schedule typically lasting six years or less, often syndicated to banks alongside revolving credits.

A term loan facility designed for nonbank accounts, often categorized by letters like B-term, C-term, or D-term.

A guarantee provided by a group of banks to cover debt or obligations if the borrower defaults.

A line of credit primarily used for financing international trade.

A loan drawn down over a period to purchase specific assets or equipment or make acquisitions, with a ticking fee charged during the commitment period and repayment over a specified term-out period.

A short-term financing loan bridging the gap until a transaction like asset sale, bond offering, or divestiture is finalized, often provided by arrangers as part of a larger financing package.

A type of bridge loan facilitated by arrangers, expected to be repaid by a secondary equity commitment in a leveraged buyout.

The bank that assumes primary responsibility for managing loan syndication, handling document-related functions, and choosing the law firm.

An umbrella term for providing credit to businesses by non-bank lenders, often regulated asset management firms pooling investor money.

Private debt lenders often have a direct relationship with the businesses they lend to, unlike bank loans which may involve intermediaries.

Private debt assets are generally held until maturity by the original lender and are not intended for frequent trading.

The terms of private debt agreements are typically structured to fit the unique needs of each borrower, unlike standardized bank products.

Private debt offers businesses greater flexibility in loan structure, faster approvals, and long-term partnerships, often absent in traditional bank lending.

Regulatory changes and shifting bank risk appetites make it harder for banks to lend to certain businesses, opening doors for private debt.

Private credit continues to grow in importance for investors and is now a permanent part of global capital allocation strategies.

Private debt is a more tailored and flexible lending alternative than bank loans, offering unique benefits to both borrowers and investors.

A loan structure where the holding company pledges the stock of operating companies to lenders, giving lenders control over subsidiaries and their assets in case of default.

A provision in loan agreements that prevents the issuer from pledging assets to new lenders, ensuring existing loanholders' interests are protected.

A provision in loan agreements where issuers nearing investment-grade or speculative-grade must either attach collateral or release existing collateral when their credit rating changes.

An event of default in a loan agreement triggered by a change of control in the issuer, such as a merger, acquisition, or significant equity purchase.

A provision in loan agreements that allows issuers to remedy a covenant violation by making an equity contribution.

A contractual violation of a loan agreement that allows lenders to accelerate the loan and force the issuer into bankruptcy.

A guarantee provided by subsidiaries of an issuer to lenders ensuring that all subsidiaries are obligated to repay the loan even if the parent company defaults.

A loan that is not secured by specific assets and is typically granted to companies with good credit ratings.

The difference between the yield on a corporate bond and a comparable government bond. It reflects the additional risk associated with the possibility of the company defaulting on its debt.

A rating assigned by agencies like Moody's, S&P, or Fitch that reflects the creditworthiness of a company's bonds. A higher rating suggests lower risk and a lower yield.

When the quality of a company's bonds deteriorates, investors will demand a higher yield to compensate for the increased risk of default. This leads to a lower bond price.

A feature of a bond allowing the issuer to redeem it before maturity at a predetermined price. Callable bonds generally trade at a lower price and have a higher yield.

A bond that can be converted into a predetermined number of shares of the issuing company's stock. Convertible bonds generally trade at a higher price and have a lower yield.

A bond secured by a mortgage on real estate. Mortgage bonds generally trade at a higher price and have a lower yield.

A bond with a lower claim to the issuer's assets in the event of bankruptcy. Subordinated bonds generally trade at a lower price and have a higher yield.

The return an investor expects to earn on a bond. YTM on a corporate bond is usually calculated by adding the credit spread to the yield on a comparable government bond.

Preferred stock is a type of equity that offers dividends at a fixed rate, but doesn't grant voting rights to the holder. Unlike common stock, it has priority in receiving dividends and assets in case of liquidation.

Companies can choose to skip preferred dividend payments without risking bankruptcy.

Issuing preferred stock doesn't dilute common equity like selling common stock. This means the ownership structure and control of the company remain largely unchanged.

Preferred stock typically has no maturity date and sinking fund payments are spread over a long period, leading to less strain on cash flow compared to repaying debt principal

Since preferred dividends are not tax-deductible, the after-tax cost of preferred stock is typically higher than that of debt.

Although a company can pass preferred dividends, investors expect them to be paid. This creates a fixed cost that impacts the company's financial risk and cost of common equity.

A convertible security, like a bond or preferred stock, allows the holder to exchange it for a predetermined amount of common stock of the issuing company.

The conversion ratio determines how many shares of common stock are received for each convertible bond or preferred stock converted.

A type of financing where investors provide capital to a company in exchange for equity or debt with the potential for higher returns.

The interest payments on mezzanine financing are tax-deductible, making it attractive for borrowers.

Mezzanine financing can involve lenders gaining equity in a business or warrants to purchase equity in the future.

Leasing is a form of asset financing where the owner of an asset allows another party to use it for a specific period in exchange for periodic payments.

In a finance lease, the lessee (the user) assumes most of the risks and rewards of ownership, while the lessor (owner) retains legal ownership.

Operating leases are essentially rental contracts for temporary use of an asset where the lessor retains most of the risks and responsibilities associated with ownership.

IFRS 16 changed the accounting treatment for leases, aligning the expense recognition for both operating and finance leases.

Under IFRS 16, lease expense for operating leases is treated as depreciation of the asset, included in operating costs, and interest expense is included in finance costs.