| Term | Definition |
|---|
| Future Value | FV = PV * (1+r)n |
| Internal Rate of Return | r = 1 - (FVF / PV0 )-n |
| Investment Grade | AAA --> BBB- |
| Non-Investment Grade | BB+ --> CCC+ |
| Chapter 7 Bankruptcy | Liquidation of a company where existing management is displaced. |
| Chapter 11 Bankruptcy | Reorganization of a business where company can operate with pre-bankruptcy management in place while the entitlement of lenders and investors are reorganized to replace a failed capital structure. |
| Petition | Filing of this voluntary by a debtor or involuntary by creditors, commences a bankruptcy case. |
| Automatic Stay | The filing of a petition automatically prohibits creditors from taking further action against the debtor during the pendency of a bankruptcy case. |
| Claims | Any right to payment. |
| Interests | The equity, or the ownership in the residual value of the debtor after claims. |
| Priority | The key concept underpinning the partitioning of loans into different types of debt. |
| Lien | When a creditor or bank has the right to sell the mortgaged or collateral property of those who fail to meet the obligations of a loan contract. |
| Perfecting | Protecting security interest in a lien |
| Unsecured claim | Claim without a lien on property securing payment of the claim |
| Secured claim | A claim involving a lien |
| Undersecured claim | A claim secured by collateral with value less than the amount of the claim |
| Fraudulent conveyance | Transfer of property in the face of insolvency at less than fair value and/or with the intent to disadvantage creditors of the transferer. |
| Preference | Pre-bankruptcy transfers of money or other property of the debtor for the benefit of a creditor on account of a debt existing prior to the time of the transfer, made at a time that the debtor was insolvent, made within 90 days of the filing, and which would result int he creditor receiving more than it would have otherwise received in a Chapter 7 liquidation. |
| Joint recourse | Proportional repayment of a claim. |
| Several recourse | Each debtor is liable for the full amount of the claim. |
| Term sheets | Summarize the principal provisions of a prospective agreement. |
| Acceleration | Causing a note to become due prior to its stated maturity, usually as the result of an event of default. |
| Affiliate transactions | Entities controlling or under common control. |
| Amendment mechanics | Mechanism by which convenants/agreements can be amended after initial execution. |
| Call premium | Amount due upon prepayment in excess of principal and interest accrued through date of prepayment. |
| Covenants | Promises made by a borrower to a lender as a condition of the loan. |
| Coverage ratios | Arithmetic ratios used to measure financial performance |
| Cure | The opportunity for a borrower to correct a convenant default usually during a defined cure period. |
| Depository | A third party that will hold money or securities. |
| Events of default | Triggers lender rights such as acceleration or increased interest rates |
| Incurrence test | Covenant test made upon incurrence of additional defined obligations. |
| Limitations on indebtedness | Limit on amount a party may borrow |
| Maintenance test | Continuing compliance with a covenant. |
| Optional Redemption | Borrowers right to prepay before maturity |
| Merger limitations | Limitation on right of a borrower to merge with another company |
| Negative pledge | Covenant not to grant security interests in any assets that would limit a lender's claims to them (opposite of Lien) |
| Restricted subsidiary and payments | A defined set of subsidiaries, the credit related activities of which are restricted by a loan agreement. |
| Subordination | Making rights of one loan inferior to those of another. |
| Trustee | A third party contractually empowered to act on the behaf of certain loan parties, usually the lenders. |
| Waiver | Agreement to accommodate a breach of covenant or other obligation. |
| Market fundamentalism | Efficient markets hypothesis: the belief that financial markets tend toward an equilibrium that assures the best allocation of resources without government interference. Rejected by Soros. |
| Soros' suggestions | 1. Markets are always biased in one direction or another 2. Markets can influence the events they anticipate |
| Black Swan theory | A large-impact, hard-to predict, and rare event beyond the realm of normal expectations. |
| High impact theory | Almost all consequential events in history come from the unexpected |
| Ludic fallacy | Unstructured randomness found in life resembles the structured randomness found in games (and hence can be modeled). |
| Anti-dilution protection | Insulates investors from the dilutive impact of subsequent financings |
| Broken deal fees | Money paid, or rights to acquire assets, granted to a seller or buyer if they do not close, under agreed circumstances, an otherwise intended transaction |
| Change of control | A sale of all or substantially all of the assets of the business or a controlling interest in the common stock of a company or a class of securities conveying effective control |
| Dividend policy | If, when, and how much dividend payments may be |
| No shop provision | Limits the ability of a seller to solicit, engage in negotiations or provide information to a third-party who might compete with a buyer |
| Oversight fees | Fees paid by a portfolio company and charged by a leveraged buyout investor in consideration of their advice |
| Preemptive rights | The right to purchase a pro rata portion of any offering of equity or equity relating securities by an issuer |
| Reps, warranties, and indemnities | Descriptions of a condition of a business or asset that is being sold or of a party to a transaction. |
| Sunset provision | Circumstances that trigger the termination of rights or restrictions. |
| Supermajority voting | A requirement for more than a simple majority 50% vote to approve an action |
| Transfer restrictions | Limitations on the ability to transfer a security to affiliates, by behest or otherwise. |
| Transfer restrictions | Restrictions on the ability to transfer a security to affiliates, by behest or otherwise. |
| Duty of loyalty | Director must discharge his duties: 1. In good faith - acting honestly and dealing fairly 2. In the best interests of the corporation |
| Duty of care | Director must discharge his duties with the care that a person in a like position would reasonably believe appropriate under similar circumstances |
| Duty of disclosure | Directors must disclose all information they have to shareholders; cannot mislead or misinform shareholders |
| Business judgment rule | Protects a director from personal liability to the corporation and its shareholders |
| Board Committees | Audit, compensation, nominating and corporate governance |
| Leadership | Not synonymous with management. Managers deliver against a plan while leaders have the character and vision to empower individuals and teams to suspend disbelief and venture prudently into uncertainty. |
Combine with other sets
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