• Acquisition financing: Form of financing for the acquisition of a company or part of a company. This can be structured as recourse or limited/non-recourse (usually via a special purpose vehicle), i.e., with or without recourse to the acquirer. 

  • Amend & Extend: Extension of the term of existing loans, usually at better conditions for the borrower, both structurally and in terms of price (amend).

  • Amendment: Additional (subsequent) agreements to existing loan agreements. 

  • Ancillary facilities: Bilaterally granted (branch or sub-) line of credit from a lender that is offset against the financing commitment under the syndicated loan. Ancillary facilities are suitable if, for example, the specific financing requirement is too small to be covered by the syndicated loan. Generally, any type of loan can be granted, although overdraft facilities, money market loans, guarantee credits and letters of credit, foreign currency loans and derivative transactions are particularly common.

  • Annuity loan: Repayment loan in which the sum of interest and repayment (debt service) remains constant each year, with the interest portion decreasing over time and the repayment portion increasing accordingly.

  • Asset-backed securities (ABS): Debentures or other instruments that usually securitize a payment claim against a special purpose vehicle and are placed on the capital market. The special purpose vehicle uses the issue proceeds to finance the acquisition of assets (e.g., receivables or securities) from a third party.

  • Bilateral loan: Loan agreements concluded between one borrower and one lender. The counterpart to this is the syndicated loan. The two types of loan are not necessarily mutually exclusive.

  • Bond: Synonym for debenture.

  • Borrowing base loan: Revolving credit line for financing current assets, in which the amount of the permissible drawdown by the borrower is closely linked to the amount of the current assets currently available. The corresponding current assets generally serve as collateral for the borrowing base loan.

  • Cap: Interest rate cap or definition of an upper margin limit in a loan agreement. The counterpart to this is the floor.

  • Closing: Completion of financing through the first disbursement or drawdown under the loan agreement. In connection with company acquisitions, the completion in rem, i.e., payment of the purchase price and transfer of the agreed shares.

  • Club deal: Syndicated loan (usually up to EUR 100 million) made available via a smaller group of lenders (usually existing (house) banks).

  • Collateral: A distinction must be made between personal and material collateral (real collateral). Personal collateral includes sureties, guarantees, assumption of debt and letters of comfort. Real collateral includes liens, chattel mortgages, assignments of collateral, mortgages and land charges.

  • Convertible bond: Special form of debenture. In addition to the right to interest and repayment, the creditor can, under certain conditions, exchange his bond for a stake (usually shares) in the issuer. After conversion, the creditor becomes a shareholder. Conversion conditions usually include the conversion ratio and conversion period.

  • Covenants: Contractual agreements on certain additional obligations of the borrower (protective clauses). A distinction is made between general covenants, information covenants and financial covenants. In the event of non-compliance, various sanctions may be agreed by the lender.

  • Covered bonds: Covered bonds form a separate asset class in the securities industry. In principle, these are interest-bearing securities that are covered or secured by a claim.

  • Credit facility agreement: One or more lenders grant bilateral loans on the basis of standardized documentation. Drawdowns can be made, for example, via money market loans, overdraft facilities or guarantee credits on terms to be agreed upon individually or bilaterally.

  • Debenture: Fungible securities, also known as bonds and debt securities, which securitize debt rights. They are denominated in a specific nominal amount and securitize claims for creditors, in particular to interest payments and repayment at the nominal amount. In order to increase fungibility, so-called partial debentures are also issued on the bond.

  • Debt capacity: The amount of a company's debt that it can sustainably service from its expected cash flows, taking into account the specific circumstances of the individual case, and which potential lenders are also prepared to make available to this company for its purposes on a permanent basis. 

  • Debt push-down: “pushing down” the debt service of the acquisition financing from the purchasing company to the target company acquired by means of the acquisition financing.

  • Development loans: Generally, forwarded (investment) loans at favorable credit conditions, processed by the house banks, which (depending on the funding program) bear a reduced credit default risk.

  • Early-Stage Financing: Early-stage financing, usually provided by business angels or venture capital investors.

  • Equity capital: Equity or equity-like funds granted by specialized investment companies to unlisted companies for the purpose of, for example, growth or turnaround financing.

  • Extension: Extension of the term of existing loans at generally unchanged conditions.

  • Factoring: In factoring, the factor purchases trade receivables from the supplier. A distinction is made between “genuine” factoring (assumption of the default risk in the event of non-payment by the factor) and “non-genuine” factoring (credit default risk remains with the supplier). A distinction can also be made between “disclosed” factoring (sale of the receivables is made known to the supplier’s customers) and “undisclosed” factoring (sale of receivables is not disclosed).

  • Financial covenants/financial ratios: Financial restrictions the borrower must fulfill as agreed during the term of a loan agreement. Generally, specific key company figures are stipulated, and failure to comply with these generally establishes grounds for extraordinary termination by the lender.

  • Finetrading: type of purchase/goods financing. Finetraders purchase goods on behalf of companies. They first pay their suppliers, subsequently sell the goods on to the company and subsequently grant it an extended payment term. Finetrading is particularly suitable for manufacturers and retailers who are faced with strong seasonal fluctuations.

  • Floor: Definition of a lower margin limit in a loan agreement. The counterpart to this is the cap.

  • Guarantee credit: In the context of guarantee credits, the lender generally assumes guarantees or sureties for a certain sum of money and receives a (one-off and ongoing) fee in return. In practice, the costs are usually lower than the interest margin of a money market loan with the same term, as the lender does not provide any liquid funds.

  • Headroom: Key company figures can fluctuate during the year and during the term of the loan, which is why a sufficient buffer (“headroom”) should be provided for the financial covenants agreed in the loan agreement. The headroom acceptable to the borrower and the lender is usually determined on the basis of the borrower's existing corporate planning.

  • High-yield bond: Bonds from issuers with a low credit rating (non-investment grade), which therefore offer a higher interest rate and a tighter covenant package than corporate bonds.

  • Indicative terms & conditions: Indicative presentation of the cornerstones, individual features and framework conditions of a financing arrangement before a term sheet is agreed.

  • Late-Stage Financing: Financing of established companies. 

  • Leasing: Renting or leasing of assets (by the lessor) for a fee (leasing payments). Typical leasing objects are movables (movable goods such as technical equipment and machinery) and real estate (land and buildings). One possible advantage of leasing is the partial off-balance sheet structure and the fact that up to 100% of the acquisition costs can be financed.

  • Letter of Intent (LoI): Written, basically non-binding declaration of intent to enter into negotiations on the conclusion of a loan agreement. The LoI usually outlines the key points of the intended financing. 

  • Leveraged buy-out (LBO): Company acquisition executed with a high level of borrowed capital, in which at least one financial investor (private equity fund) usually acts as the buyer.

  • Limited recourse financing: Lenders can have limited recourse to the borrower's shareholders. The limitation of liability often consists of a time limit and takes into account the individual financing phases’ different risk structures.

  • Loan Market Association (LMA) standard documentation: Initiative by lawyers, banks and auditors, among others, to develop internationally harmonized sample (loan) contracts. The LMA standard documentation is particularly widespread in the leveraged finance sector (leveraged buy-out) in order to make transaction processes faster and more cost-effective.

  • Lombard loan/securities loan: Form of financing (usually short or medium-term) in which the financing is secured by a pledge of securities.

  • Management buy-out: Financing of the acquisition of a majority stake in a company or part of a company by a person related to the company, usually with the additional involvement of a financial investor from outside the company (private equity fund).

  • Market sounding: Approaching selected financing partners for a basic willingness to provide financing support or to request conditions (usually anonymous presentation of the financing project).

  • Mezzanine: Form of capital between equity and debt capital. This can be used to close financing gaps between existing equity and the available (senior) debt capital. A distinction is made between “equity mezzanine” and “debt mezzanine” financing.

  • Money market loan: Form of financing (usually under a revolving credit line) for the short-term financing of current assets. In contrast to an overdraft facility, a money market loan is paid out to the borrower's account. Repayment is made at the end of the agreed interest period (usually 1, 3, 6 or 12 months). Money market loans under a revolving credit line can also be extended at the end of the agreed interest period or only repaid in part.

  • Negative pledge: Obligation of the borrower not to provide any collateral for other current or future loan liabilities. This is usually combined with a pari passu declaration.

  • Non-recourse financing: (Acquisition/project) company is only liable with the assets (including capital contributions of the shareholders) and the income from the project/target company and any recourse to the shareholders is excluded. The repayment and interest expenses for the financing are generated by the target company/target.

  • Off-balance sheet financing: Transactions not recognized in the balance sheet. Pursuant to Art. 285 No. 3 HGB, the nature and purpose as well as the risks and benefits of material transactions not included in the balance sheet must be disclosed in the notes if they have a material impact on the financial position either individually or in the aggregate (factoring, ABS transactions, non-genuine repurchase agreements, operating leases, sale-and-lease-back transactions, consignment stock agreements, outsourcing of operational functions).

  • Overdraft facility: Revolving credit line granted on the borrower's current account for short-term utilization of the required liquidity. The overdraft facility can be repaid on a daily basis via payments from the operating business. It is a flexible financing instrument for meeting daily financing requirements.

  • Pari passu: Obligation of the borrower to ensure the equal ranking of current and future (unsecured) claims against it. Accordingly, the borrower may not grant new lenders priority over the beneficiary of the pari passu declaration.

  • PIK interest: “Payment-in-kind” interest (PIK) is an interest structure or component in which interest is not payable during the term of the loan at the end of the respective interest period, but only at the end of the loan term.

  • Private equity fund: Generic term for equity capital in the broadest sense, which is usually invested in unlisted companies from closed-end investment funds.

  • Probability of default (PD): Risk parameter under banking supervisory law for measuring the probability of default and thus the credit risk.

  • Profit participation right: Generally, a freely configurable form of financing, particularly with regard to profit participation, interest claim or participation in losses and/or liquidation proceeds.

  • Project financing: Financing of a large investment project for the specific purpose of which a single-purpose vehicle is established. The repayment of the financing is based on the cash flow to be generated from the operation of the investment project. Thus, project participants and investors achieve an advantageous delimitation of risk and limitation of liability.

  • Promissory note loan: Form of debt financing for companies that is often the first step on the way to the capital market. These are usually long-term financing instruments similar to bonds, but are based on a bilateral loan agreement. Borrowers gain access to large capital collection agencies and investors without having to tap the organized capital market. Promissory note loans are usually suitable for stronger credit ratings with higher financing volumes and long terms. It is not a fungible security, so tradability and transferability are limited.

  • Rating: Classification based on quantitative and qualitative factors used by banks or rating agencies to assess the creditworthiness of borrowers. Good credit ratings are in the “investment grade” range, while weaker credit ratings are in the “non-investment grade” range. The so-called “crossover” area is a transition zone. 

  • Refinancing: Refinancing refers to the (early) redemption of expiring financing and its replacement with new financing.

  • Recapitalization (recap): Comprehensive change to the financing structure of a company (injection of equity/raising of further debt capital or restructuring of existing financing). Often used in direct connection with a partial exit or a partial distribution.

  • Request for Proposal (RfP): Request for quotation or selection procedure, or invitation to tender (for financing partners) with an invitation to submit a quotation under defined conditions. Typically, a request for proposal contains a description of the desired services as well as information on the timeline and the further course of the process. This enables competition between the participating financing partners and creates a certain degree of transparency for the borrower with regard to (indicative) conditions for initial benchmarking.

  • Reverse factoring: The creditworthiness of the customer is used (reversal of factoring) in order to extend the own payment terms for the supplier invoice. The supplier is paid by the factor. In this case, the factoring transaction is initiated by the customer. Reverse factoring is particularly suitable for companies within multi-link supply chains.

  • Revolving credit line: The borrower can repeatedly draw on the revolving credit line up to the maximum amount of the agreed credit line within the credit period in varying amounts, even if partial or full repayments have been made in the meantime.

  • Sale & Lease Back: Generating liquidity by selling (usually fixed) assets and leasing them back over a defined term.

  • Seasonal loan: Special form of financing current assets in the event of seasonal high capital requirements.

  • Security purpose agreement: Agreement on the scope of the security purpose of loan collateral. It regulates the rights of creditors in the event of a realization event. In the case of a “narrow” purpose agreement, only a specific (loan) receivable that prompted the provision of collateral is collateralized. In the case of a “broad” special-purpose agreement, all of the creditor’s claims can be backed by the collateral, even if the creditor’s claim did not yet exist when the declaration of purpose was established.

  • Seed Financing: Financing ideas before formation of a company.

  • Shareholder loans: Granting/forwarding of loans by the shareholders to the company. Advantage: can increase the economic equity in conjunction with a subordination and non-call agreement, while the interest payable on it is also generally tax-deductible.

  • Signing: Signing of a loan agreement or company purchase agreement.

  • Silent partnership: Form of financing in which the silent partner usually receives a share of the profits as well as interest in return for granting the silent partner’s interest. A special form is the structuring as an “atypical silent partner”: The silent partner not only becomes an investor, but also a co-owner of, for example, the undisclosed reserves, although he also participates in any losses.

  • Subordinated loan: Liabilities or claims that may only be settled after the claims of other creditors in the event of liquidation or insolvency proceedings.

  • Syndicated loan: Several (but at least two) lenders provide financing to a borrower on the basis of standardized documentation. This type of loan offers the advantage that the overall risk of the loan is spread across several lenders and therefore also allows for the provision of very large-volume financing. Administrative processing (communication, utilization, etc.) is organized via a lead manager. The syndicated loan is the counterpart to the bilateral loan.  

  • Term loan: Typically a senior secured term loan which can be repayable/amortizing or bullet.

  • Term sheet: Basic document that serves to document the key (indicative) conditions of a financing arrangement and contains the key points of the contract components negotiated between the contracting parties. A term sheet becomes the basis for the content and subsequent wording of the (loan) agreement to be concluded. The use of a term sheet is particularly common for complex and lengthy financing projects. A term sheet does not replace the conclusion of a contract and therefore does not create rights and obligations, nor does it guarantee the parties complete legal certainty. Rather, it documents the current status of the negotiations and the agreements already made verbally.

  • Unitranche: Form of financing that is usually offered by private debt funds. It is intended to cover both the senior and junior loan portions of a financing in a single credit facility and is therefore provided with a so-called “blended rate” as the interest rate. Mostly bullet or without regular amortization and with a liquidity-preserving (partial) PIK interest.

  • Waiver: Waiver by creditors, e.g., not to exercise termination rights of a financing (usually triggered by non-compliance with covenants/obligations of the financing agreement). Depending on the materiality of the waiver, often against payment of a fee. The application must be submitted by the borrower (waiver request).