Glossary of Terms

Alphabet loans/notes

Where more than one loan is used, they may be designated as 'A', 'B', 'C' etc. loans/notes. Alternatively, they may be described as first senior, second senior and so on. Though they rank equally, such loans will have different repayment periods.

Bridging loan

A loan used for a short period where there's a certainty of repayment from a specific event such as the sale of fixed assets.

Bullet

Repayment of debt in one amount at the end of a fixed period.

CFADS

Cash flow available for debt servicing i.e. EBITDA after adjusting for working capital movements, capital expenditure, fixed asset disposals and tax.

Committed/uncommitted

Committed facilities are only repayable at the end of a specific period such as three or five years, whilst uncommitted facilities are repayable on demand (e.g. an overdraft).

EBIT/PBIT

Earnings before interest and tax/profit before interest and tax.

EBITDA

Earnings before interest, tax, depreciation and amortisation.

Evergreen

A facility with no fixed repayment profile.

Financial risks

Risks pertaining to the funding structure, such as adverse interest or currency rate movements.

Hedging

Method of reducing different types of financial risks.

High yield debt/junk bonds

Fixed high rate tradeable debt which is usually unsecured.

Institutional loan stock

Debt put in by venture capitalists which may or may not be secured and which bankers regard as quasi-equity.

Junior debt

A debt or quasi equity instrument which is subordinated to senior and mezzanine but ranks ahead of institutional loan stock. The boundaries between junior and mezzanine can be blurred.

Mezzanine debt

Debt which ranks and is repaid after senior debt but before junior/institutional loan stock. Generally carries an option, warrant or redemption fee, which tends to distinguish it from senior debt reflecting the inherent risk nature of such a debt instrument.

P/E

Price/earnings multiple i.e. the number of years' post tax profit that the business is being valued at.

PIK

Payment in kind – a proportion of interest which is accrued on mezzanine/junior debt and paid either on a certain date or when the business is sold, whichever comes first.

PIYC

Pay if you can – similar to PIK but only paid if certain cash flow trigger levels are reached.

Revolver/revolving credit

A facility generally drawn in minimum tranches for specific periods which is available during the commitment period. Used for working capital and bridging/project finance and in most syndicated transactions.

Securitised loans

Fixed rate debt which is packaged and traded.

Senior debt

'Vanilla' debt with first ranking priority and repayment. May also be referred to as an A, B or C note if more than one debt instrument is used.

Subordinated debt

Debt which ranks after other forms of debt. e.g. institutional loan stock is subordinated to senior, mezzanine and junior debt.

Working capital

Funds which are generally tied up in the stock/debtors of the business. A true working capital facility is usually expected to go into credit for certain specified times during the financial year.