Private Debt

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Amortization The gradual repayment of a loan principal over time through regular installments, consisting of both principal and interest payments.

Bridge Loan A short-term loan that provides interim financing until a borrower secures a permanent source of capital.

Cash Flow The net amount of cash generated or consumed by a company’s operating, investing, and financing activities, often used to assess a company’s ability to meet its debt repayment obligations.

CLO (Collateralized Loan Obligation) A type of securitization vehicle that pools together multiple loans and issues different tranches of debt securities backed by those loans’ cash flows.

Collateral Assets pledged by a borrower to secure a loan, giving the lender the right to seize and sell those assets in the event of default.

Commercial Mortgage-Backed Securities (CMBS) Securities that are backed by a pool of commercial real estate loans, structured and sold to investors, functioning similarly to residential mortgage-backed securities (RMBS).

Covenant A contractual provision in a debt agreement that specifies certain actions or restrictions that a borrower must adhere to, such as financial performance ratios or limitations on future borrowing.

Credit Default Swap (CDS) A financial derivative contract that provides insurance against the default of a specific debt instrument, allowing investors to hedge their credit risk exposure.

Credit Facility A type of debt financing that provides a borrower with a specific amount of capital that can be drawn upon as needed within a defined period, usually with a set interest rate and maturity date.

Credit Rating An assessment of the creditworthiness and default risk of a borrower or debt instrument, usually assigned by credit rating agencies.

Debt Financing The process of raising capital through borrowing, where a company or individual borrows funds from a lender, typically with an agreement to repay the principal amount plus interest over a specified period.

Debt Maturity Profile The distribution of a company’s outstanding debt obligations across different maturity dates, providing information about the company’s liquidity and refinancing needs in the future.

Debt Restructuring The process of modifying the terms and conditions of existing debt obligations, often done to alleviate financial distress and improve the borrower’s ability to repay.

Debtor-in-Possession (DIP) Financing Financing provided to a company that has filed for bankruptcy, allowing the debtor to continue operating while restructuring its debts.

Distressed Debt Debt of a company that is in financial distress or at risk of default, often purchased by investors at a discount to its face value in anticipation of a potential recovery.

Diversification The practice of spreading investment capital across multiple different assets or borrowers to reduce risk exposure.

Interest Coverage Ratio A financial ratio that indicates a company’s ability to meet interest payments on its debt obligations, calculated by dividing earnings before interest and taxes by interest expenses.

Interest Rate The percentage of the loan amount that the borrower pays the lender as compensation for borrowing the funds, typically expressed as an annualized rate.

Junior Debt Debt that ranks lower in priority to both senior debt and subordinated debt, often associated with higher risk and higher potential returns for investors.

LBO (leveraged buyout) The acquisition of a company using a significant amount of borrowed funds, with the acquired company’s assets serving as collateral for the debt.

Lender of Record The entity that officially lends the funds and maintains the loan documentation, often distinct from the original lender if the debt has been syndicated or sold.

Liquidity Covenant A covenant that requires a borrower to maintain a certain level of liquidity, typically to ensure adequate cash reserves for debt servicing.

Loan Agreement The formal contract between a lender and borrower that outlines the terms and conditions of a loan, including interest rates, repayment schedule, and any covenants or collateral requirements.

Loan Servicing The administration and management of loan accounts, including collecting payments, maintaining records, and addressing borrowers’ inquiries.

Loan-to-Value (LTV) Ratio The ratio of the loan amount to the value of the underlying asset used as collateral, commonly used in real estate financing.

Maturity Date The date on which a debt obligation is due to be repaid in full, marking the end of the loan’s term.

Mezzanine Financing A type of subordinated debt that combines elements of debt and equity financing, typically used to fill the gap between senior debt and equity financing in a company’s capital structure.

NIM (Net Interest Margin) A profitability ratio that measures the difference between a lender’s interest income and interest expenses, usually expressed as a percentage of the lender’s interest-earning assets.

Nominal Interest Rate The stated interest rate on a debt instrument, without accounting for the effects of compounding or inflation.

Non-Bank Lender An institution or investor that provides lending services and financial products without being classified as a traditional bank, such as private equity firms, asset managers, or alternative investment funds.

Non-Performing Loan (NPL) A loan that is in default or is at risk of default, usually classified as such when payments are overdue for a specified period.

Non-Recourse Loan A loan that is secured by collateral, with the lender having no claim on the borrower’s other assets in case of default, limiting the lender’s recourse only to the collateral.

Origination Fee A fee charged by lenders to cover the costs associated with processing a loan application and disbursing funds.

Principal The original amount of money borrowed or the outstanding balance of a loan, excluding any interest or fees.

Private Credit A broad term that encompasses various types of debt instruments and strategies provided by non-bank lenders, including private debt funds, direct lending, mezzanine financing, and distressed debt investing.

Private Debt Debt that is provided by non-bank lenders to companies or individuals, typically outside of public markets.

Private Placement The sale of debt securities directly to institutional investors, typically without a public offering, often used by companies to raise capital in a more cost-effective and efficient manner.

Restrictive Covenant A specific type of covenant in a loan agreement that restricts a borrower’s actions, such as limiting its ability to take on additional debt or sell assets.

S&P/LSTA Leveraged Loan Index An index that tracks the performance of the U.S. leveraged loan market, often used as a benchmark for private debt investments.

Securitization The process of pooling together a group of debt instruments, such as loans or mortgages, and issuing securities backed by the cash flows generated by those assets.

Senior Debt The highest-ranking debt in a company’s capital structure, which has priority over other debts in the event of bankruptcy or liquidation.

Senior Secured Debt Debt that is secured by specific assets of a borrower, providing greater protection for lenders in case of default.

Subordinated Debt Debt that ranks lower in priority to senior debt, which means that subordinated debt holders would have a weaker claim on the company’s assets in case of default.

Term Sheet A preliminary document that outlines the key terms and conditions of a potential loan or investment, serving as a basis for further negotiations.

Underwriting The process of evaluating and assessing the creditworthiness of a borrower and determining the terms and conditions of a loan.

Unitranche Financing A type of debt financing that combines senior and subordinated debt into a single loan facility, simplifying the capital structure for borrowers and providing more flexibility for lenders.

Workout The process of negotiating and restructuring distressed debt with the aim of achieving a more feasible repayment plan for the borrower.

Yield The return on an investment, expressed as a percentage, often used in the context of fixed-income securities such as bonds or loans.

Yield Spread The difference between the interest rate of a particular debt instrument, such as a bond or loan, and a benchmark interest rate, reflecting the perceived credit risk associated with the borrower.

Yield to Maturity (YTM) The total return anticipated on a bond or loan if held until its maturity date, taking into account both interest payments and any discount or premium at which the debt was purchased.