Book of Jargon® – US Corporate and Bank Finance

Un glossaire mettant à disposition, en ligne, la terminologie de la finance d'entreprise et bancaire américaine.

  • A / B Exchange Offer:
    another name for an Exchange Offer.
    A Loan:
    another name for a Tranche A Term Loan.
    acronym for Agreement Among Initial Purchasers.
    acronym for Agreement Among Underwriters.
    acronym for Asset-Based Loan.
    ABR Loans:
    another name for Base Rate Loans.
    acronym for Asset-Backed Security.
    Absolute Priority Rule:
    under Bankruptcy law, this rule states that when a company is liquidated or reorganized, senior classes of claims and Equity interests must receive full distributions on account of their claims or Equity interests before junior classes may receive any distributions, unless the senior classes consent otherwise.
    Accelerated Filer:
    a category of Issuer created by SEC rules. An Issuer’s status as an Accelerated Filer, as opposed to a Large Accelerated Filer, a Non-Accelerated Filer or a Smaller Reporting Company, determines when its Financial Statements go Stale and when it has to comply with SOX Section 404. An Issuer qualifies as an Accelerated Filer if (i) its Public Float is between $75.0 and $700.0 million as of the last business day of the second fiscal quarter of the Issuer’s preceding fiscal year and (ii) it has been subject to the requirements of Section 13(a) or 15(d) of the Exchange Act for at least 12 months, including the requirement to file an annual report. Once an Issuer is in Accelerated Filer land, its Public Float has to fall below $50.0 million to get out. See Latham & Watkins Desktop Staleness Calendar.
    the end of the line under an Indenture or Credit Agreement. The definitions of Default and Event of Default describe how we get there. Following an Event of Default, the Bondholders (under an Indenture) or Lenders (under a Credit Agreement) have the right to “accelerate” the due date of their debts; in other words, they have the right to declare their Notes or loans immediately due and payable. Bankruptcy and insolvency Events of Default automatically lead to Acceleration (without any action by the Bondholders or the Lenders) because otherwise Acceleration would be prohibited under the Automatic Stay.
    Accordion Feature:
    so called because it resembles the expanding musical instrument that shares its name, this is a feature in a Credit Agreement that allows the Borrower to increase the maximum commitment amount under a Revolver or to incur additional Term Loan debt under circumstances specified in the Credit Agreement. The Accordion, however, is not pre-committed financing. It is really just an advance agreement to share Collateral with additional Lenders in the future if the Borrower can find them on the agreed terms. Also known as an Incremental Facility.
    when used in secured bank land, this is not a bank account. Under the UCC, an Account is a right to payment for, among other things: (i) property that has been or will be sold, leased, licensed or assigned; (ii) services that have been performed or will be performed; (iii) insurance policies that have been issued or will be issued; or (iv) secondary obligations that have been incurred or will be incurred. An Account does not include a right to payment that is evidenced by Chattel Paper or an instrument, or which results from commercial tort claims, deposit accounts, investment property, Letter of Credit rights or Letters of Credit. When used in Bond land this term is a shorthand reference to the potential buyers of Securities in an offering.
    Account Control Agreement:
    this is how Lenders in a secured financing Perfect their Security Interest in a Borrower’s deposit and securities accounts. It is an agreement among the Borrower, the Collateral Agent and the bank or securities intermediary where the Borrower has its deposit or securities account. Absent an Event of Default, the Borrower usually retains full access to the account. Upon an Event of Default, however, the Collateral Agent may notify the deposit bank or securities intermediary to transfer control over the account to the Collateral Agent. A Security Interest in a securities account is typically Perfected either by means of an Account Control Agreement or by filing a Financing Statement, although a Security Interest Perfected by means of Control has Priority over a Security Interest Perfected by filing a Financing Statement. A Security Interest in a deposit account, by contrast, can be Perfected only by means of an Account Control Agreement or another method of Control, not by filing a Financing Statement.
    Account Party:
    the party that asks that a Letter of Credit be issued, and who is responsible for repaying the Issuing Bank when the Letter of Credit is drawn by the beneficiary.
    Accounting Circle Up:
    another name for a Circle Up.
    Accredited Investor:
    defined under SEC Rule 501 of Regulation D, this refers to people and entities that are permitted to buy Securities in a Private Placement. The term covers virtually all the types of institutions that are participants in the Private Placement market, and also includes people who are either rich or sophisticated. It is, of course, better to be both rich and sophisticated, but one will do for Regulation D purposes.
    Accreted Value:
    this is the original purchase price of a Zero Coupon Bond or Discount Note plus all non-cash Interest that has accrued on the Bond or Note since the date of issuance. The calculation of Accreted Value is set forth in the Indenture under which the Bonds or Notes were issued.
    Accrued and Unpaid Interest:
    Indentures and Credit Agreements all designate Interest Payment Dates. If a redemption or prepayment is made, Accrued and Unpaid Interest refers to the interest that has accrued since the last payment date, but has not yet been paid to Bondholders or Lenders.
    Acquisition Line:
    a Delayed Draw Term Facility intended to be used to fund acquisitions.
    Additional Amounts:
    like a Tax Gross-Up in a Credit Agreement, a provision in an Indenture that increases the amount of any payment with respect to the Notes by the Issuer to a holder of the Notes so that, after payment of applicable withholding taxes, the holder receives what it would have received if no withholding taxes had been imposed.
    Additional Interest or Special Interest:
    In the context of Bonds, Additional Interest begins to accrue in instances where the Issuer fails to comply with its obligations under its Registration Rights agreement—for instance, because the Issuer does not get the Exchange Offer effective in the time specified by the Registration Rights agreement.
    Adjusted EBITDA:
    EBITDA on steroids. Refers to EBITDA, adjusted to eliminate the impact of certain unusual or non-cash items that the Issuer/Borrower (or its Sponsor) believes are not indicative of the future performance of its business. In Credit Agreements, this term can also refer to EBITDA adjusted on a Pro Forma basis for acquisitions and dispositions, so that, when measuring EBITDA for a particular period, any acquisition or disposition in that period is deemed to have happened on the first day of such period so the EBITDA of the acquired/disposed of asset is gained/lost for the whole period. For Reporting Companies, disclosure of EBITDA, Adjusted EBITDA and other “non-GAAP financial measures” must be done within the confines of Item 10 of Regulation S-K (in the case of certain public filings) and Regulation G of the SEC (in all cases). A form of Adjusted EBITDA is also a component of the Leverage Ratio and Fixed Charge Coverage Ratio definitions.
    Admin Agent:
    shorthand for Administrative Agent.
    Administrative Agent:
    the bank that serves as the principal Agent administering the Credit Facilities documented in the Credit Agreement. The Administrative Agent is responsible for processing Interest payments to Lenders, posting notices delivered by the Borrower and acting as the primary representative of the Lenders under a Credit Agreement in dealings with the Borrower. The Trustee performs an analogous role in Bond land.
    Administrative Agent Fee:
    the annual fee paid to the Administrative Agent for administering a Credit Facility; sometimes referred to as the Agency Fee.
    defined slightly differently in different types of agreements, but generally refers to a subsidiary, corporation, partnership or other person controlling, controlled by or under common control with another entity. The official Securities law definition is found in SEC Rule 144 and Rule 405.
    Affiliate Transactions Covenant:
    a Negative Covenant that protects against disguised dividends by preventing the Issuer/Borrower from entering into non-arm’s-length transactions with its Affiliates, such as paying excessive management fees to Sponsors, selling assets to stockholders for less than fair market value or overpaying stockholders/employers through excessive salaries. The Affiliate Transactions Covenant typically does not flatly prohibit Affiliate transactions, but rather requires that they be on arm’s-length terms and, at certain dollar thresholds, be approved by disinterested directors. Fairness Opinions are also sometimes required.
    Affirmative Covenant:
    requires an Issuer/Borrower  to affirmatively do something. These are contractual provisions in an Indenture or a Credit Agreement that itemize certain actions the Issuer/Borrower must take to be in compliance with the applicable document. Think of these as the “Thou Shalt” Covenants. Affirmative Covenants are usually more boilerplate in nature, covering such things as a promise by the Borrower to pay Interest and fees, maintain insurance, pay taxes, provide quarterly operating reports and so forth. In a secured deal, the Affirmative Covenants regarding delivery and maintenance of Collateral will be more highly negotiated. Compare Negative Covenant.
    Agency Fee:
    another name for Administrative Agent Fee.
    generic term used to describe any of the Administrative Agent, Collateral Agent, Documentation Agent and Syndication Agent.
    Agreement Among Initial Purchasers:
    the agreement that governs the relationship among the Initial Purchasers in connection with an unregistered securities offering. Comparable to an Agreement Among Underwriters. See Master Agreement Among Underwriters.
    Agreement Among Underwriters:
    the agreement that governs the relationship among the Underwriters in a registered Securities offering. See Master Agreement Among Underwriters. There is no directly comparable document among the members of a bank loan Syndicate, mostly as a matter of custom. See, however, Syndication Agreement.
    AHYDO Catch-Up Payment:
    it is possible to avoid “significant OID” (and thereby avoid the AHYDO Rules altogether) by providing for a “catch-up” payment to holders of certain High Yield instruments issued with OID on or before the first payment date after the fifth anniversary of the original issuance of the debt instrument. The purpose of the AHYDO Catch-Up Payment is to pay enough of the OID in cash so that the Issuer is not more than one year’s worth of Interest behind on that date. For a more comprehensive summary of the requirements for an AHYDO Catch-Up Payment that will permit a debt instrument to avoid the AHYDO Rules, see Latham & Watkins Client Alert No. 598, The AHYDO Rules and the PIK Toggle Feature (May 16, 2007).
    AHYDO Rules:

    rules under the Internal Revenue Code that limit a company’s ability to deduct Interest on certain High Yield instruments issued with OID. AHYDO (Applicable High Yield Discount Obligations) Rules are particularly important in hot markets when Bonds with a PIK feature are being sold. Normally, a company can deduct Interest from its calculation of taxable income, whether paid in cash or in kind. However, if the AHYDO Rules apply, a company cannot deduct Interest from its calculation of taxable income until it pays the Interest in cash (and the company may be prohibited from deducting a portion of the Interest permanently). If a debt instrument is issued by a partnership (or a limited liability company or other entity that is taxed as a partnership), the AHYDO Rules would apply to any corporate partner of the Issuer.

    The AHYDO Rules apply if a debt instrument meets each of the following criteria: (i) it is issued by a corporation; (ii) it has a maturity greater than five years; (iii) it is issued with “significant OID” and (iv) it is issued at a Yield to maturity that equals or exceeds the applicable federal rate for the month of issuance (the “AFR”) plus 500 Basis Points. “Significant OID” generally means that the debt instrument permits the Borrower to pay more than one year’s worth of Interest in the aggregate over the first five years of the life of the instrument on a non-cash basis. If the AHYDO Rules do apply, then the Issuer (or, in the case of a partnership Issuer, its corporate partners) cannot take tax deductions for non-cash Interest payments until the Interest is actually paid in cash. In addition, if the Yield to maturity on the debt instrument exceeds the AFR plus 600 Basis Points, and if the AHYDO Rules otherwise apply, then the Issuer (or its corporate partners) can never take the deduction for any Interest over that level. For a more comprehensive summary of the AHYDO Rules, see Latham & Watkins Client Alert No. 598, The AHYDO Rules and the PIK Toggle Feature (May 16, 2007). See AHYDO Catch-Up Payment.

    acronym for the American Institute of Certified Public Accountants, Inc.
    All or Substantially All:
    no one knows exactly what this phrase means. This phrase is used in various Covenants and other contractual provisions, but the precise meaning is the subject of much debate (and litigation). It does not necessarily mean what it sounds like in general layman’s terms. See, for example, Sharon Steel Corp. v. Chase Manhattan Bank, N.A., 691 F.2d 1039 (2d Cir. 1982) and B.S.F. Co. v. Philadelphia National Bank, 204 A.2d 746 (Del. 1964). If you think you have an “all or substantially all” question, call a Latham lawyer.

    refers to a transaction (and the subsequent court decision) where an Issuer of High Yield Bonds was determined by the court to have made an “indirect” Restricted Payment. As interpreted by High Yield market participants, Alleco now stands for the proposition that an Issuer of High Yield Bonds cannot get “around” a Restricted Payments Covenant by (a) having another entity borrow the necessary funds and make the (prohibited) payment and (b) having the Issuer subsequently assume (and/or repay) that debt. Always look out for an “Alleco issue” when Target Bonds are being left in place.

    In Alleco: (1) the buyer borrowed $65 million and used it to purchase Alleco’s common stock; (2) the buyer then merged into Alleco, and, as a result, Alleco became the borrower under that new $65 million bridge loan and (3) the following day Alleco repaid the $65 million bridge loan. The court found that the substance of those transactions constituted a self-tender and therefore violated the Restricted Payments Covenant in Alleco’s Indenture, notwithstanding Alleco’s argument that each step was permitted thereunder. See Alleco, Inc. v. IBJ Schroder Bank & Trust Co., 745 F.Supp. 1467 (D. Minn. 1989).

     see Allotment.
    also described as Allocation. When used in Bond land, this is the amount of a new issue of Securities allotted to each Syndicate member by the Lead Manager after the final terms of the issue have been fixed. Following Allotment, the Syndicate members will sell the Securities allotted to them to their investor clients.
    Alternative Transactions Language:
    a provision in the Fee Letter that says that the investment bank that has committed to a Senior Secured Credit Facility or Bridge Facility will still get paid all or some of its agreed fees if the Borrower ends up funding the applicable facilities through a different bank. Sometimes this is negotiated down to either giving the original bank a right to play in any new deal (but not a guarantee of payment), or giving the original bank an amount of fees equal to what the alternative bank gets.
    Amend and Extend:
    a phrase used to describe an amendment to a Credit Agreement that extends the maturity of one or more debt tranches, sometimes in conjunction with covenant and/or pricing amendments.
    an Amendment or change to the provisions of an existing agreement. For instance, a Borrower might amend its Credit Agreement to allow for more indebtedness to be incurred. See also Technical Amendment.
    American Depository Receipt or ADR:
    a negotiable certificate issued by a bank or trust company and traded in the US markets that represents ownership of Securities of a non-US company. ADRs are denominated in US dollars, and the underlying Security is held by a US financial institution overseas. ADRs are US Securities and are accordingly subject to US Securities regulations.
    acronym for Anti-Money Laundering.
    the required periodic repayment in installments of portions of the principal of a Term Loan prior to its final maturity. Bonds, Revolving Facilities, and Second Lien Facilities generally do not Amortize. In accounting speak, Amortization is the same concept as Depreciation, except that intangible assets are Amortized and tangible assets are Depreciated. See Depreciation.
    Amortization Schedule:
    the schedule of regularly timed payments of principal prior to the maturity of a Term Loan. The Amortization Schedule is usually set forth in the Senior Secured Facilities Term Sheet and then in the Credit Agreement itself.
    Amortizing Loan:
    usually a reference to a Tranche A Term Loan.
    Angel Investor:
    an investor that provides capital for a business start-up, usually in exchange for convertible Preferred Stock or Equity ownership.
    Anti-Layering Covenant:
    a Covenant that prohibits an Issuer from layering in another series of debt between the Senior Debt and the Subordinated Debt. This is essentially a no-cheating rule and is only used in senior subordinated deals. Senior Notes include an analogous provision that requires that all debt that Subordinates itself to any Senior Secured Credit Facilities also Subordinate itself to the Senior Notes. The Anti-Layering Covenant ensures that the Subordinated Debt occupies the second class slot and not the third or fourth. Since Second Lien Facilities are effectively “sandwiched” in-between the First Lien Facilities and unsecured Bonds, Second Lien Facilities are sometimes prohibited by the Anti-Layering Covenant.
    Anti-Money Laundering:
    see KYC.
    Applicable Margin:
    the additional percentage that is added to a particular Interest Rate index to determine the Interest Rate payable on variable rate debt. Generally, the Credit Agreement (or the Interest Rate section of the Senior Secured Facilities Term Sheet) will set the Interest Rate at either (at the Borrower’s option) the Base Rate plus a specified percentage, or LIBOR plus a specified percentage. The specified percentage is usually referred to as the Applicable Margin. The Applicable Margin for Base Rate Loans is almost always 100 Basis Points lower than the Applicable Margin for LIBOR Loans.
    to take advantage of a price differential between two or more markets, such as by buying an investment in one market and then immediately selling it at a higher price in another market.
    the investment bank that “arranges” a Credit Facility by negotiating original terms with the Borrower and Syndicating the facility to a larger group of Lenders. In a Commitment Letter, the name of the Arranger for the Senior Secured Credit Facilities is set forth in the Senior Secured Facilities Term Sheet; the name of the Arranger for the Bridge Loan facilities is set forth in the Bridge Facility Term Sheet. Generally, the same entity serves as Arranger for both. The Arranger generally has no ongoing obligations under a Credit Agreement or Bridge Loan Agreement after the Closing Date.
    Arranger Fee:
    another name for an Underwriting Fee.
    Article 9:
    the law that governs the validity and Perfection of Security Interests in most personal property secured deals. This is the article of the UCC that governs secured transactions. See Perfection.  In California, Article 9 is called “Division 9”—they just have to be special.
    As-Extracted Collateral:
    a type of personal property defined in Article 9. It consists of (i) oil, gas or minerals that are subject to a Security Interest before they have been extracted or (ii) accounts from the sale of oil, gas or minerals that the debtor has an interest in before their extraction. For troubled credits, may also include teeth.
    Asset Sale Covenant:
    the Covenant in an Indenture or Credit Agreement that governs the sale or other disposition of assets. In an Indenture, the Covenant assures that the Issuer’s Balance Sheet stays in balance by making sure that if assets shrink, the Issuer either replaces the assets with new assets or reduces its debt. The company is allowed to sell assets under the Covenant, but it must get fair market value and mostly cash (typically 75 percent). The proceeds must be used to repay Senior Debt, reinvested in long-term assets useful in the business or used to make an offer to repurchase Bonds at Par. In a Credit Agreement, by contrast, this Covenant also limits the Borrower’s ability to sell assets, except as may be specifically negotiated on a deal-by-deal basis (which may permit the Borrower to sell assets for fair market value if the Borrower receives mostly cash). In the Credit Agreement context, see also Asset Sale Prepayment.
    Asset Sale Prepayment:
    a specific type of Mandatory Prepayment. This provision in a Credit Agreement requires the loans to be prepaid with the net cash proceeds of certain non-ordinary course asset sales of the Borrower and its subsidiaries. The idea is that secured loans are made partly based on the knowledge that a certain amount of asset value is held by the Borrower and pledged as Collateral. To the extent the Collateral is disposed of, the loans are prepaid with the proceeds. This provision will often pick up proceeds of casualty or condemnation insurance, thereby incorporating the Insurance Proceeds Prepayment provision. This repayment requirement is often subject to a Reinvestment Right (if the Borrower reinvests the proceeds within a certain period, it generally does not have to repay the loans with these proceeds).
    Asset Sale Sweep:
    another name for an Asset Sale Prepayment.
    Asset-Backed Security:
    a generic term describing Tranched, exchange-listed Bonds issued by Special Purpose Entities backed by financial assets as mundane as residential mortgages (residential mortgage-backed securities or RMBS), commercial mortgages (commercial mortgage-backed securities or CMBS), automobile loans and leases, and credit card obligations, or as esoteric as casualty insurance claims (catastrophe Bonds or cat Bonds), life insurance claims (viatical settlement Bonds) or changes in survival rates (longevity Bonds). CBOs, CDOs, CFOs, and CLOs are all also types of Asset-Backed Securities.
    Asset-Based Loan:
    Revolving Facility where the total amount that can be borrowed fluctuates based upon the value of certain assets of the Borrower at a given time. Unlike a Cash Flow Revolver, which provides the Borrower with a line of credit in a fixed amount that can be borrowed at any time, an Asset-Based Loan limits the line of credit to the lesser of a fixed amount and a percentage of the value of a certain set of assets (primarily accounts receivable and inventory). This is often referred to as a Borrowing Base. Asset-based lending is a way for companies to meet their short-term cash needs by borrowing against their short-term assets at favorable rates. Asset-Based Loans are particularly popular among retailers and other businesses with large amounts of accounts receivable and inventory. See Borrowing Base.
    a Lender’s transfer of its rights and obligations under a Credit Agreement or Bridge Loan Agreement to a new Lender. Borrowers frequently like to maintain a degree of control over the Assignment process through consent rights and, in some cases, Blacklists. Lenders prefer to limit such consent rights in order to maximize Syndication options and keep the loans more freely tradable. Note that a Borrower’s right to consent to transfers is an important fact that helps distinguish loans from Securities.
    At Par:
    see Par Value.
    Auction Rate Securities:
    a long-term Security, often a municipal Bond, that has interest that re-sets on very short terms, usually seven, 28 or 35 days. At the end of that period, the Interest Rate is re-set through a Dutch Auction. The holder can, at the end of any Interest Period, put the Bond back to the Issuer (i.e., cause the Issuer to buy the Bond). The Bond is then quickly remarketed. Variable Rate Debt Obligations are similar but have a bank facility to ensure purchase of the Bonds if they are not successfully remarketed.
    Audit Committee:
    A committee of the board of directors that oversees a company’s audit, control and financial reporting functions. SEC rules require that the Audit Committee of a public company be comprised entirely of Independent Directors and be responsible for engaging and overseeing the company’s independent accountants and establishing procedures for the treatment of complaints regarding auditing, internal control, and accounting matters.
    the signing of a Security (in global or definitive form) by the Trustee in order to give it legal effect.
    Automatic Shelf Registration:
    a Registration Statement on Form S-3 or Form F-3 filed by a WKSI. The advantage of an Automatic Shelf Registration (as opposed to a plain-vanilla Shelf Registration filed by a company that is not a WKSI) is that it becomes automatically effective, so that sales of the Securities can take place immediately after filing, without the possibility of SEC review.
    Automatic Stay:
    the rule under Bankruptcy law that once a Bankruptcy case is commenced, creditors and other parties generally are not permitted to collect on claims against the debtor or otherwise obtain or exercise Control or possession over property of the debtor’s bankruptcy estate outside of the Bankruptcy proceedings. Creditors may seek relief from the Automatic Stay by filing a motion with the Bankruptcy court. There are also a number of exceptions to the Automatic Stay, such as governmental entities exercising their police power and the termination or liquidation of certain financial contracts.
    this is a term used most frequently in the world of Revolving Facilities. It is a measure of the amount of additional borrowings or other extensions of credit (such as the issuance of Letters of Credit) that would be permitted under the Revolver at any particular point in time. Term Loan Facilities are generally drawn once on the Closing Date, although some allow for delayed draws during a specified period (see Delayed Draw Term Facility). Revolving Facilities are lines of credit that generally may be drawn, repaid and redrawn throughout the life of the facility, but only if there is Availability (in the case of an Asset-Based Loan, under the Borrowing Base formula). The Availability terms are found in the Senior Secured Facilities Term Sheet and then documented in full in the Credit Agreement.
    Available Amounts Basket:
    an extra Basket (included in many Credit Agreements) that may be used for dividends, Capital Expenditures, investments or the prepayment of other debt (usually Subordinated Debt). This is a bank land replica of the way Restricted Payment capacity works in most High Yield Indentures. The Available Amounts Basket generally starts with 50 percent of consolidated net income or that portion of Excess Cash Flow that is not captured by the Excess Cash Flow Sweep, and builds cumulatively over time (perhaps with the receipt of Equity proceeds, in deals where no Equity Sweep is present). Though available for Capital Expenditures, prepayments of other debt, dividends and investments, the Available Amounts Basket is a single Basket, so usage for one purpose reduces the amount available for other purposes.
    Average Life:
    another name for Weighted Average Life.

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