Corporate financing glossary

The arrangement fee is the fee that the company pays to the arranger or the lender when a financing is put in place.

Asset-based lending is a loan whose available amount follows the value of the trade receivables, inventory and other assets that the company provides as collateral.

Bank disintermediation refers to the decline in the share of bank lending in corporate financing in favour of the markets and non-bank lenders.

With a bullet repayment, the company pays only interest during the life of the loan and repays all of the principal at maturity.

Call protection makes a prepayment that the borrower decides on its own initiative costly during the first years of a loan.

A convertible bond is a debt security that its holder can exchange for shares in the issuing company at a conversion ratio set at issue.

Covenants are the undertakings, including financial ratios tested on fixed dates, that the borrower gives in its loan agreement, with an event of default as the sanction for breach.

Direct lending refers to loans that a debt fund grants to a company without syndication and holds until they are repaid.

Euribor is the euro money market benchmark rate on which a floating rate corporate loan calculates its interest, with the lender’s margin added.

The interest rate floor sets the minimum value that the agreement uses for the benchmark rate of a loan, such as Euribor, when that benchmark falls below this threshold.

The margin is the fixed component of the rate of a floating rate loan, added to the benchmark rate to pay for the risk the lender takes on the company.

Mezzanine debt is subordinated debt, repaid after senior debt, for which the lender obtains a higher return in exchange.

The middle market is the segment of companies between SMEs and large corporates, which corresponds in France to ETIs and forms the core of direct lending.

A pledge (nantissement) is the security interest that charges an intangible movable asset, such as shares, receivables or a bank account, as collateral for a debt.

Private debt covers the financing that non-bank lenders, mainly debt funds, provide to companies outside the public markets.

A debt fund is an alternative investment fund that lends to companies the capital it raises from investors, mainly institutional ones.

Securitisation turns a portfolio of receivables into securities split into tranches of different ranks, which investors fund.

Senior debt is a company’s first ranking debt, secured by collateral and repaid before subordinated debt.

Structured finance covers debt structures built for a specific transaction, with tranches of different ranks, security and covenants.

A syndicated loan is a loan that a group of lenders grants to a company under a single agreement, organised by one or more arrangers.

Unitranche debt combines in a single loan, at a single rate, what a traditional structure splits between senior debt and subordinated debt.

A bullet loan is a loan whose principal is repaid in a single payment at maturity; the borrower pays only interest during the life of the loan.

A cash sweep requires the borrower to apply part of its excess cash each year to the prepayment of its debt, at a percentage that falls as leverage decreases.

The conversion ratio is the number of shares a holder receives for each convertible bond or security giving access to capital when it exercises its right.

A Euro PP is medium or long term financing that a company negotiates with a limited number of institutional investors, in the form of a bond or a loan.

The Euro PP Charter is the non-binding market framework that sets out best practice and documentation templates for private placements between companies and institutional investors.

The facility agent is the institution that the lenders appoint to administer a financing with several lenders after signing, between the borrower and the syndicate.

A participating loan is a long term loan that the law treats as equity when assessing the company’s financial position, repaid after all other creditors in a liquidation.

Holdco PIK is debt that a holding company above the operating group issues, with interest added to the principal (payment in kind).

The negative pledge clause prohibits the borrower from granting security to other financial creditors without extending it, at the same rank, to the lenders that stipulate it.

A Schuldschein is a German law loan, evidenced by an acknowledgement of debt and placed with institutional investors. It requires neither a prospectus nor a listing.

A share warrant gives its holder the right to subscribe for shares in the issuing company at a price and over a period set in advance; in private debt it serves as additional remuneration.

Venture debt is debt granted to an innovative company backed by venture capital, alongside its equity rounds, and remunerated through interest and share warrants.

An acquisition holding company is the company created to buy a target company, of which it becomes the parent, financing part of the price with borrowings.

French tax consolidation allows a parent company that holds at least 95% of its subsidiaries to pay corporate income tax on the combined result of the group.

Non-sponsored finance refers to debt granted to a company that no private equity fund controls.

Pro forma EBITDA is a group’s EBITDA recalculated as if an acquisition or a disposal had taken place at the start of the reference period.

A vendor loan is the part of the sale price that the seller agrees to receive later, which reduces the financing the buyer must raise at closing.

Adjusted EBITDA is accounting EBITDA restated for the items that the borrower and the lenders agree to add or remove when calculating the ratios in the agreement.

The Banque de France rating assesses a company’s ability to meet its financial commitments over a one to three year horizon.

A commitment fee compensates the lender for the committed but undrawn part of a credit facility, as an annual percentage of the available amount.

Conditions precedent are the documents and events that the borrower must deliver or bring about before signing the facilities agreement or drawing the funds.

A covenant-lite loan carries no financial covenant tested at regular intervals; the ratios are checked only when the borrower undertakes a specific transaction.

A cross default clause turns a default on another debt of the group into an event of default under the facilities agreement.

Debt capacity is the amount of debt that a company can carry and repay from its cash flow within a period that lenders consider acceptable.

The DSCR divides the cash a company generates over a period by the interest and principal it must pay over the same period.

An equity cure allows shareholders to remedy a financial covenant breach by injecting equity within a period set by the facilities agreement.

Events of default are the events listed in the facilities agreement that allow lenders to demand early repayment and to enforce the security.

A company’s gearing divides its net debt by its equity and measures the share of its financing that lenders provide.

An information memorandum is the document that presents the company and its financing request to the lenders approached.

An IOBSP is the intermediary that presents, offers or helps to conclude banking transactions or payment services, for remuneration.

Original issue discount is the gap between the face value of a loan and the amount actually paid to the borrower, who repays it at face value.

A term sheet is the short document that sets the main terms of a financing before the facilities agreement is drafted.

The total leverage ratio divides a company’s total debt by its EBITDA for the last twelve months and serves as a covenant in leveraged financings.

A waiver is the written agreement by which lenders give up, for a given period or ratio, their right to rely on a breach by the borrower.

Amend and extend is the renegotiation of a loan with its current lenders to push back its maturity by amendment, in exchange for revised commercial terms.

A bank syndicate is the group of banks that jointly finance a company under a single credit agreement, each for a share, under the coordination of an arranger and then an agent.

Classes of affected parties group the creditors and shareholders whose rights a safeguard plan modifies; each class votes on the plan by a two-thirds majority of the votes cast.

A covenant reset redefines the financial covenant levels of a loan, in particular maximum leverage, to align them with the company’s performance or new scope.

A debt for equity swap replaces a financial claim with equity securities of the debtor company: the creditors become shareholders and the debt falls by the amount converted.

Accelerated safeguard is a collective insolvency procedure of two to four months, opened after a conciliation, in which the affected parties vote by class on a plan that the court makes binding on all.

The ad hoc mandate is an amicable procedure under the French Commercial Code in which the president of the court, at the chief executive’s request, appoints an ad hoc agent to help the company negotiate with its creditors.

Conciliation is an amicable procedure lasting four months at most, extendable to five, in which the president of the court appoints a conciliator to seek an agreement between the company and its main creditors.

Credit mediation is a free public service attached to the Banque de France that helps a company in dispute with its banks, factoring companies or credit insurers.

A haircut is the reduction in the amount of a claim that a lender accepts in a restructuring, through a write-off, a buyback below par or a conversion into equity.

Acceleration allows lenders to demand immediate repayment of the whole loan before its maturity when an event of default provided for in the agreement occurs.

A margin ratchet is the clause that varies the margin on a loan according to a borrower ratio, such as its leverage, in steps defined in a grid.

New money is the new financing a company obtains during the restructuring of its debt, to which the French Commercial Code grants a priority payment rank.

The conciliation privilege ranks new cash contributions made under a court-approved conciliation agreement ahead of all other claims if collective insolvency proceedings open later.

The prepayment fee is the sum the borrower pays the lender when it repays a loan or a bond before the scheduled maturity.

Refinancing replaces existing debt with new financing, from the same lenders or new ones, to change its maturity, cost, lenders or covenants.

A standstill agreement is the agreement under which creditors refrain, for a defined period, from exercising their rights against the borrower while the parties negotiate.

The advance rate is the percentage of the value of an eligible asset, receivables or inventory, that the lender agrees to finance in an ABL facility.

The pacte commissoire is the clause that makes the creditor the owner of the asset given as security if the secured debt is not paid.

Availability is the amount a borrower can draw at a given moment under a facility backed by its assets, once outstanding drawings and reserves are deducted.

The borrowing base is the maximum amount an asset-based lender agrees to finance, calculated from the borrower’s eligible receivables and inventory.

A Dailly assignment transfers ownership of a company’s business receivables to the lender, by mere delivery of a schedule (bordereau), as security for or in payment of a loan.

Under English law, a debenture is the security document by which a company grants its lender fixed charges and a floating charge over its assets.

Dilution is any reduction in the value of a trade receivable other than the debtor’s default: credit note, discount, returned goods or dispute.

Factoring is the contract by which a company transfers its trade receivables to a factoring company, which advances their amount and collects them.

Under English law, a fixed charge is security over a specific asset that the company cannot dispose of without the lender’s consent.

The fiducie-sûreté transfers ownership of an asset or a right to a trustee (fiduciaire), who holds it in a separate estate as security for the repayment of a debt.

Non-notification factoring is factoring in which the company’s customers receive no notice of the assignment of the invoices to the factor.

A non-possessory pledge gives the lender security over tangible movable assets that the company keeps and continues to use.

Parallel debt is a separate claim of the security agent against the borrower, equal to what the borrower owes the lenders, which allows the agent to hold the security in its own name.

The reserve is the share of the value of the financed receivables or inventory that the factor or asset-based lender holds back to cover specific risks, including dilution.

A retention of title clause delays the transfer of ownership of goods sold until the price is paid in full and allows the seller to reclaim them if the buyer defaults.

The right of retention allows a creditor holding an asset of its debtor to refuse to return it until the creditor is paid.

A securities account pledge charges the financial securities held in an account as security for a debt, including those credited to it later.

The security agent takes, registers, manages and enforces the security for a financing in its own name, for the benefit of all the lenders.

The standstill period is the time during which a junior creditor refrains from accelerating its claim or enforcing its security after an event of default.

Subordination is the undertaking by which a creditor agrees to be paid after another creditor, on ordinary payments and in insolvency proceedings.

A change of control clause gives lenders the right to be repaid when the borrower’s main shareholder loses control of the company.

EBITDA measures operating earnings before depreciation, amortisation and provisions; it is the equivalent of the French excédent brut d’exploitation (EBE).

Financial assistance is the help a company gives a third party to buy its own shares; article L. 225-216 of the French Commercial Code prohibits it for sociétés anonymes and SAS.

The Loan Market Association (LMA) is the trade association for the syndicated loan market in Europe, the Middle East and Africa; it publishes recommended forms of facility agreement.

NOLV is the estimated net value of an orderly sale of a company’s assets over a period of six to nine months; it is the basis for advance rates in asset-based lending.

A springing covenant is a financial covenant tested only when a condition in the agreement is met, in practice a drawing on the revolving credit facility above a threshold.

Structural subordination places the lenders of a parent company behind the creditors of its subsidiaries, who have direct recourse to the assets of those subsidiaries.

Subordinated debt is repaid after the creditors that rank ahead of it in the order of payment, in exchange for a higher interest rate.

A term loan is a fixed amount of credit that finances an identified need; amounts repaid leave the loan facility for good.

A business development company is a closed-end investment company under US law that finances unlisted companies and must hold at least 70% in qualifying assets.

A club deal is a smaller syndicated loan that the borrower negotiates with a small group of lenders chosen before the transaction is launched.

The DFSA (Dubai Financial Services Authority) is the independent regulator of financial services carried on in or from the Dubai International Financial Centre (DIFC).

A DIFC credit fund is a fund domiciled in the Dubai International Financial Centre that makes loans to companies under a DFSA regime in force since 1 June 2022.

The fonds commun de titrisation (FCT) is a French co-ownership vehicle without legal personality that acquires receivables or grants loans and funds itself by issuing units and debt securities.

The FSRA (Financial Services Regulatory Authority) is the financial services regulator of Abu Dhabi Global Market (ADGM), the financial free zone of Abu Dhabi.

The lower middle market is the bottom end of the mid-sized company market; in Europe, some private debt managers place companies with EBITDA of up to €15m in it.

Murabaha is an Islamic finance arrangement in which the financier buys an asset and then resells it to the company at a marked-up price payable on deferred terms.

A private placement is an issue of securities reserved for qualified investors or for fewer than 150 investors, which falls outside the rules on offers to the public.

Professional Client is the client category reserved for entities deemed able to make their own investment decisions; in the DIFC, only these clients have access to credit funds.

The organisme de financement spécialisé (OFS) is a French fund created in 2017 that invests in receivables and securities and grants loans to non-financial companies.