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Private Equity Flash Cards


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Transfer restrictions
Restrictions on the ability to transfer a security to affiliates, by behest or otherwise.
Events of default
Triggers lender rights such as acceleration or increased interest rates
Board Committees
Audit, compensation, nominating and corporate governance
Incurrence test
Covenant test made upon incurrence of additional defined obligations.
Filing of this voluntary by a debtor or involuntary by creditors, commences a bankruptcy case.
Investment Grade
AAA --> BBB-
Coverage ratios
Arithmetic ratios used to measure financial performance
Causing a note to become due prior to its stated maturity, usually as the result of an event of default.
The opportunity for a borrower to correct a convenant default usually during a defined cure period.
Duty of loyalty
Director must discharge his duties: 1. In good faith - acting honestly and dealing fairly 2. In the best interests of the corporation
Duty of care
Director must discharge his duties with the care that a person in a like position would reasonably believe appropriate under similar circumstances
Change of control
A sale of all or substantially all of the assets of the business or a controlling interest in the common stock of a company or a class of securities conveying effective control
Business judgment rule
Protects a director from personal liability to the corporation and its shareholders
Promises made by a borrower to a lender as a condition of the loan.
Term sheets
Summarize the principal provisions of a prospective agreement.
Making rights of one loan inferior to those of another.
Market fundamentalism
Efficient markets hypothesis: the belief that financial markets tend toward an equilibrium that assures the best allocation of resources without government interference. Rejected by Soros.
Dividend policy
If, when, and how much dividend payments may be
Optional Redemption
Borrowers right to prepay before maturity
Black Swan theory
A large-impact, hard-to predict, and rare event beyond the realm of normal expectations.
Merger limitations
Limitation on right of a borrower to merge with another company
Automatic Stay
The filing of a petition automatically prohibits creditors from taking further action against the debtor during the pendency of a bankruptcy case.
When a creditor or bank has the right to sell the mortgaged or collateral property of those who fail to meet the obligations of a loan contract.
Secured claim
A claim involving a lien
A third party contractually empowered to act on the behaf of certain loan parties, usually the lenders.
Pre-bankruptcy transfers of money or other property of the debtor for the benefit of a creditor on account of a debt existing prior to the time of the transfer, made at a time that the debtor was insolvent, made within 90 days of the filing, and which would result int he creditor receiving more than it would have otherwise received in a Chapter 7 liquidation.
Anti-dilution protection
Insulates investors from the dilutive impact of subsequent financings
Not synonymous with management. Managers deliver against a plan while leaders have the character and vision to empower individuals and teams to suspend disbelief and venture prudently into uncertainty.
Protecting security interest in a lien
Call premium
Amount due upon prepayment in excess of principal and interest accrued through date of prepayment.
Several recourse
Each debtor is liable for the full amount of the claim.
Unsecured claim
Claim without a lien on property securing payment of the claim
Future Value
FV = PV * (1+r)n
Joint recourse
Proportional repayment of a claim.
Reps, warranties, and indemnities
Descriptions of a condition of a business or asset that is being sold or of a party to a transaction.
No shop provision
Limits the ability of a seller to solicit, engage in negotiations or provide information to a third-party who might compete with a buyer
Maintenance test
Continuing compliance with a covenant.
Limitations on indebtedness
Limit on amount a party may borrow
Oversight fees
Fees paid by a portfolio company and charged by a leveraged buyout investor in consideration of their advice
Affiliate transactions
Entities controlling or under common control.
Agreement to accommodate a breach of covenant or other obligation.
Duty of disclosure
Directors must disclose all information they have to shareholders; cannot mislead or misinform shareholders
Negative pledge
Covenant not to grant security interests in any assets that would limit a lender's claims to them (opposite of Lien)
Restricted subsidiary and payments
A defined set of subsidiaries, the credit related activities of which are restricted by a loan agreement.
Any right to payment.
Non-Investment Grade
BB+ --> CCC+
High impact theory
Almost all consequential events in history come from the unexpected
Soros' suggestions
1. Markets are always biased in one direction or another 2. Markets can influence the events they anticipate
The equity, or the ownership in the residual value of the debtor after claims.
Fraudulent conveyance
Transfer of property in the face of insolvency at less than fair value and/or with the intent to disadvantage creditors of the transferer.
A third party that will hold money or securities.
Internal Rate of Return
r = 1 - (FVF / PV0 )-n
Chapter 11 Bankruptcy
Reorganization of a business where company can operate with pre-bankruptcy management in place while the entitlement of lenders and investors are reorganized to replace a failed capital structure.
Ludic fallacy
Unstructured randomness found in life resembles the structured randomness found in games (and hence can be modeled).
Amendment mechanics
Mechanism by which convenants/agreements can be amended after initial execution.
Chapter 7 Bankruptcy
Liquidation of a company where existing management is displaced.
Supermajority voting
A requirement for more than a simple majority 50% vote to approve an action
Transfer restrictions
Limitations on the ability to transfer a security to affiliates, by behest or otherwise.
The key concept underpinning the partitioning of loans into different types of debt.
Sunset provision
Circumstances that trigger the termination of rights or restrictions.
Broken deal fees
Money paid, or rights to acquire assets, granted to a seller or buyer if they do not close, under agreed circumstances, an otherwise intended transaction
Undersecured claim
A claim secured by collateral with value less than the amount of the claim

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