THE READING ROOMONE TERM AT A TIME, IN FULL
The Reading Room.
Every term a credit desk uses, explained at length: what it is, why it moves, a worked example, how a lender reads it, and where the three markets differ.
393 PAGES · 13 SHELVES · FREE TO READ
A definition tells you what a word means. It does not tell you why the number moved, what a lender does about it, or why the same term is argued over differently in Auckland, Sydney and London. These pages do: one term each, worked through on a composite company, from the side of the desk that has to decide.
They are the long half of the glossary. Look a term up there for the paragraph; come here when the paragraph is not enough. Every page names its definition at the foot, and every definition points back at its page.
The credit decision
15 PAGES- 5 Cs of credit
- Connected exposure
- Credit committee
- Customer concentration
- In-principle approval (approval in principle)
- Key-person risk
- Policy exception
- Primary source of repayment
- Risk grade
- Second way out
- Serviceability
- Serviceability buffer (assessment rate)
- Single-name limit
- Supplier concentration
- Take-or-pay contract
Reading the numbers
52 PAGES- Add-back cap
- Adjusted EBITDA
- Advance rate schedule (dairy)
- Breakeven interest rate
- Breakeven milk price
- Capex-to-depreciation ratio
- Cash conversion (ratio)
- Cash flow available for debt service (CFADS)
- Cash netting cap
- Cash taxes (tax paid)
- Contribution margin
- Cost of production (dairy)
- Creditor days (DPO)
- Current ratio
- Debt capacity
- Debt payback period
- Debt per kgMS
- Debt-like items
- Debtor days
- Dividend payout ratio
- Downside case
- EBITDAaL (EBITDA after leases)
- EBITDAR
- Exceptional items (non-recurring items)
- Farm working expenses (FWE)
- FFO to debt
- First-lien leverage
- Fixed charge cover ratio (FCCR)
- Free cash flow (lender's definition)
- Gearing
- Global cash flow
- Growth capex (expansion capex)
- Interest cover ratio
- Inventory days (DIO)
- Liquidity headroom
- Loan life cover ratio (LLCR)
- LTM EBITDA (last twelve months)
- Maintenance capex
- Net debt (covenant definition)
- Normalised working capital (working capital peg)
- Operating leverage
- Order book cover
- Overtrading
- Owner drawings
- Owner remuneration normalisation
- Price-volume-mix analysis (PVM)
- Pro forma EBITDA
- Quality of earnings
- Quick ratio (acid test)
- Retained cash flow (RCF) to net debt
- Run-rate EBITDA
- Tangible net worth
The accounts and the audit file
16 PAGES- Bank confirmation (audit)
- Capitalised costs
- Contingent liabilities
- Contract assets (unbilled revenue)
- Customer prepayments (deferred income)
- Debt classification on a covenant breach
- Doubtful debts provision (expected credit loss allowance)
- Intercompany balances
- Management accounts
- Percentage-of-completion revenue (input and output methods)
- Qualified audit opinion
- Related-party transactions
- Right-of-use asset and lease liability (IFRS 16)
- Shareholder current account
- Subsequent event
- Window dressing (period-end debt)
Facilities and their shape
52 PAGES- Accordion facility
- Amortisation
- Ancillary facility
- Balloon payment
- Bilateral facility
- Bridging loan (bridge finance)
- Bullet repayment
- Cash sweep
- Chattel mortgage
- Clean-down
- Club facility
- Completion accounts
- Debt sculpting
- Debt service reserve account (DSRA)
- Delayed-draw term loan (DDTL)
- Dividend recapitalisation (dividend recap)
- Earn-out
- Equity contribution (acquisition finance)
- Evergreen facility
- Finance lease
- Floor plan finance (stocking finance)
- Fungible term loan
- Hardcore (overdraft)
- Hire purchase (HP)
- Incremental facility
- Interest-only period
- Limit excess
- Loan to enterprise value
- Locked box (leakage)
- Majority lenders
- Management buy-out (MBO)
- Maturity extension (amend and extend)
- Mezzanine finance
- Multi-currency facility
- PIK interest (payment in kind)
- Recurring revenue loan (ARR loan)
- Refinancing risk
- Residual value (lease)
- Sale and leaseback
- Seasonal facility
- Self-liquidating
- Sponsor-backed lending
- Swingline
- Syndicated loan
- Tail (term loan)
- Term loan B (TLB)
- Term-out
- Uncommitted facility
- Unitranche
- Unsecured lending
- Vendor finance (vendor loan)
- Working capital facility
Covenants and clauses
36 PAGES- Capex covenant
- Certain funds
- Change of control clause
- Clean-up period
- Compliance certificate
- Condition precedent (CP)
- Condition subsequent
- Covenant headroom
- Covenant mulligan
- Covenant reset
- Covenant step-down
- Covenant waiver
- Covenant-lite (cov-lite)
- Cross-default
- Cure period
- Distribution lock-up
- Equity cure
- Event of default
- Frozen GAAP
- Guarantor coverage test
- Incurrence covenant
- Information undertakings
- Liquidity covenant
- Mandatory prepayment
- Material adverse change (MAC) clause
- Negative pledge
- Permitted baskets
- Repayable on demand
- Reservation of rights
- Restricted group
- Review event
- Springing covenant
- Term sheet
- Test date (covenant)
- Unrestricted subsidiary
- Yank-the-bank clause (replacement of lender)
Security and ranking
49 PAGES- All-monies clause
- Back-to-back loan
- Cash cover (cash-collateralised facility)
- Corporate benefit
- Cross-guarantee
- Debenture (security document)
- Debt pushdown
- Deed of priority
- Desktop valuation
- Financial assistance (whitewash)
- First mortgage
- Floating charge
- Forced-sale value
- General security agreement (GSA)
- Independent legal advice certificate
- Intercreditor agreement
- Lending value
- Letter of comfort
- Limited guarantee
- Liquidation value (orderly and forced)
- Livestock as security
- Loan to security ratio (LSR)
- Loss payee (bank's interest noted)
- Panel valuer
- Pari passu
- Partial release (of security)
- Payout figure (redemption statement)
- Perfection (security interest)
- Personal guarantee release
- PPSR (Personal Property Securities Register)
- Preferential creditors
- Purchase money security interest (PMSI)
- Recovery waterfall
- Retention of title
- Second lien (second-lien loan)
- Security trustee (security agent)
- Share pledge (share charge)
- Solicitor's undertaking
- Specific security agreement (SSA)
- Statement of position (personal assets and liabilities)
- Step-in rights
- Structural subordination
- Subordination
- Tax arrears (statutory tax debt)
- Third-party mortgage
- Title insurance
- Upstream guarantee
- Valuation reliance letter
- Water entitlements (as security)
Receivables and trade
51 PAGES- Advance payment guarantee (APG)
- Advance rate
- Aged debtors report
- Asset-based lending (ABL)
- Availability (borrowing base)
- Aval
- Back-to-back letter of credit
- Banker's acceptance
- Bid bond (tender guarantee)
- Bill of lading (B/L)
- Borrowing base
- Borrowing base certificate
- Cash dominion (springing dominion)
- Collection account
- Concentration limit
- Confirmed letter of credit
- Contra debtor (contra)
- Counter-guarantee
- Cross-ageing
- Debtor verification
- Dilution (receivables)
- Discrepancy (letter of credit)
- Documentary collection
- Documents against acceptance (D/A)
- Dynamic discounting
- Early settlement discount
- Eligible receivables
- Export credit agency cover (ECA cover)
- Field exam (collateral audit)
- Forfaiting
- Incoterms
- Letter of credit (LC)
- On-demand guarantee
- Open account
- Performance bond
- Post-shipment finance
- Pre-shipment finance (packing credit)
- Progress claim (payment claim)
- Recourse (receivables finance)
- Red clause letter of credit
- Selective invoice finance (spot factoring)
- Shipping guarantee
- Slow-moving stock
- Standby letter of credit (SBLC)
- Supply chain finance (reverse factoring)
- Trade credit insurance
- Transferable letter of credit
- Trust receipt
- Unapplied cash (unallocated receipts)
- Usance letter of credit
- Virtual accounts
Property and development
33 PAGES- Capitalisation rate (cap rate)
- Capitalised interest (funded interest)
- Completion guarantee
- Contingency (construction budget)
- Cost overrun guarantee
- Cost to complete
- Debt yield
- Development feasibility
- Effective rent (lease incentives)
- Equity first (development loan)
- Interest reserve
- Loan to cost (LTC)
- Loan to gross development value (LTGDV)
- Net operating income (NOI)
- Occupancy cost ratio
- On-completion value
- Over-rented property (reversionary yield)
- Peak debt
- Practical completion
- Pre-let (agreement for lease)
- Presales
- Profit on cost
- Quantity surveyor (QS)
- Release price
- Rent cover
- Rent roll (tenancy schedule)
- Residual land value
- Residual stock loan
- Retention (construction)
- Stretch senior
- Sunset clause (off-the-plan sale)
- Vacancy allowance
- Weighted average lease expiry (WALE)
Pricing and fees
19 PAGES- Agency fee
- All-in rate (all-in cost)
- Bank bill rate (BKBM / BBSY)
- Break cost
- Commitment fee
- Cost of funds
- Credit margin
- Default interest
- Establishment fee
- Funds transfer pricing (FTP)
- Interest rate floor (on a loan)
- Line fee
- Margin ratchet
- Prepayment fee (early repayment fee)
- Risk-adjusted return on capital (RAROC)
- Risk-based pricing
- Sustainability-linked margin
- Utilisation fee
- Wallet share
Rates and currency
15 PAGESCredit risk and problem loans
34 PAGES- 13-week cash flow forecast
- 90 days past due (90 DPD)
- Credit bid
- Credit-impaired (stage 3)
- Creditors' compromise (Part 14)
- Debt-for-equity swap
- Early warning indicators (EWIs)
- Evergreening
- Exposure at default (EAD)
- Farm debt mediation
- Forbearance
- Haircut (restructuring)
- Independent business review (IBR)
- Loan loss provision
- Loss given default (LGD)
- Mortgagee sale
- Non-performing loan (NPL)
- Pre-pack sale (pre-packaged administration)
- Probability of default (PD)
- Probation period (forborne loans)
- Rating migration
- Receivership
- Scheme of arrangement
- Shadow director
- Shortfall debt (residual debt)
- Significant increase in credit risk (stage 2)
- Standstill agreement
- Unlikeliness to pay (UTP)
- Voidable preference
- Voluntary administration (VA)
- Watch list
- Workout
- Write-off
- Wrong-way risk
How a bank works
14 PAGES- Behavioural maturity
- Business email compromise (BEC)
- Confirmation of Payee (CoP)
- Cost of risk
- Credit conversion factor (CCF)
- Credit cycle
- Deposit beta
- Four-eyes principle (maker-checker)
- Management overlay (provisions)
- Maturity transformation
- Notional pooling
- Risk-weighted assets
- Yield curve
- Zero-balancing (cash concentration)