Institutional Loan Glossary
Asset-Backed Securities: Securities Collateralized by a pool of assets. The process of creating securities backed by assets is referred to as Asset Securitization.
Base Rate: A Lender's base rate or prime rate, is their fundamental reference rate of interest reset daily or weekly.
Basis Risk: The risk between two different instruments used to index the floating-rate side of a swap transaction.
Bond: A Bond is a negotiable Note or certficate which evidences indebtedness. Bonds are also referred to as Notes or Debentures. The term Note usually implies a shorter maturity than Bond.
Capital Appreciation Bonds: Zero-Coupon Bonds sold at Par or Better price.
Cash Flow: A measure of a companies liquidity, consisting of net income plus non-cash expenditures depreciation.
Contingent Liability: A Contingent Liability is a liability which may arise somtime in the future may never arise and is dependent upon some factor other than the passage of time.
Covered Interest Arbitrage: Investing dollars currency in an instrument denominated in a foreign currency and hedging the resulting foreign exchange risk by selling the proceeds of the investment forward for dollars.
Default: Failure to make timely payments contigent upon the Note executed at closing. Compiled of interest and principlal on debt security or to otherwise comply with provisions of a bond indenture or loan agreement.
Defeasance: In loans and leases and swapsk a substitutiion of a lump sum payment for the present value of a stream of payments.
Deficiency Agreement: An Agreement to guarantee revenues will be received or expenses paid to make up a shortfall required to satisfy full payoff of scheduled debt.
Earnings: The excess of revenues over all related expenses for a given period of time. Sometimes used as a description of income, net income, profit or net profit.
Equity: Net Worth, Assets minus Liabilities, The stocholder;s residual ownership position.
Fitch: Credit Rating Agency.
Fixed Currency: A Currency whose official exchange value in terms of gold or other currencies is maintained by the central bank or monitary authority of the concerned country and does not vary. Although most exchange rates are now floating rates, they will usually fix them against the US dollar.
Fixed Income Security: A Legal Agreement between buyer & seller and an established exchange or its clearing house in which the buyer/seller agreees to take delivery of somthing at a specified priice at the end of a designated period of time and date. The price at which the parties agree to transact in the future is called the futures price. The designated date at which the parties must transact is called the settlement or delivery date.
Hard Currency: A Currency considered by the market to likely maintain it value against other currencies in the global credit markets over a period of predetermined timeline and not likely to be eroded by inflation. Hard currencies are freely convertible. The most obvious hard currencies currently are the US Dollar, Euro, Yen, Swiss Franc and Sterling.
IFC: International Finance Corporation,, a susidiary of the International Bank for Reconstruction and development (World Bank).
IRR: Internal Rate of Return.
ITC: Investment Tax Credit.
Liability: An Obligation to pay the Note face amount designated to a fixed asset collateral debt loan.
LIBOR: The London Interbank Offered Rate of Interest on Eurodollar depsits traded between banks. There is a different LIBOR rate for each deposit maturity. Different banks may quote slight variance to the LIBOR Rate Index due to their use of a variable reference bank.
Liquid Asset: A liquid asset is one that can be converted easily and rapidly into cash liquidity without substantial loss of market valuation.
Liquidation: The process of closing a company or selling assets registered in the loan Note as collateral; Payoff of creditors and distributing any remaining cash to owners or lienholders.
Marginal Cost of Capital: The incremental cost of financing above a floor or previous level.
Moody's: A credit rating agency.
Negotiable Instrument: Any written evidence of a payment obigation whichh may be transferred by endorsement or by delivery, such as checks, bills, of exchange, drafts, promissory notes, and some types of bonds or securities and of which the transferee may become a holder in due course.
Note: An instrument recognized as a legal evidence of debt that is signed by the maker, promising to pay a certain sum of money, on a specified date, at a certain place of business, to the payee or holder of the note. The difference, if any between notes and bonds is normally the maturity, notes having a shorter life. US Trasury Notes are coupon securities that have an original maturity up to 10 years.
Rule 144A: A rule adopted by the US Securities and Exchange Commission in April 1990 that eliminates the two year holding period of privately placed securities by permitting large Institutions to trade such securities among themselves without having to register them with the SEC
Sale and Leaseback: A transaction in which an investor purchases assets from the owner and then leases such assets back to the same person. The lessee receives the sale price and cotinues to enjoy the use of the assets.
Secondary Market: After the initial distribution of bonds or securties, secondary market trading can be executed. New issue houses usually make a market in bonds or securites which they have co-managed. Other Institutions, such as Banks, investment banks, and Securities Trading Firms. generally act as market deal makers in a wide range of issues and instruments by quoting two-way prices and prepared to deal at the price points of index and margin of the fixed asset capital markets.
Securitizatioin: Process of pooling assets; Creating different bond class categories that are backed by the pool of assets; and, delinking of the credit risk of the pool of assets from the credit risk of the originator.
Short: A market participant assumes a short position by selling a commodity or security investor does not own.
Sovereign Risk: The special risk that attaches to an investment or loan due to the borrower's Country of residence differs from that of the investor's; Also referred to as country risk.
Standard & Poor's: A credit rating agency.
Venture Capital: Risk capital in the form of equity investments or equity related debt securities extended to start-up or small going concerns.
Yield: Rate of return on a loan, expressed as a percent and annualized.
Yield to Maturity: The rate of return yelded by a debt security hold to maturity when both interest payments and the investor's capital gain or loss on the security are taken into account.