Private Equity Flash Cards
Terms
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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.
- Petition
- 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
- Acceleration
- Causing a note to become due prior to its stated maturity, usually as the result of an event of default.
- Cure
- 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
- Covenants
- Promises made by a borrower to a lender as a condition of the loan.
- Term sheets
- Summarize the principal provisions of a prospective agreement.
- Subordination
- 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.
- Lien
- 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
- Trustee
- A third party contractually empowered to act on the behaf of certain loan parties, usually the lenders.
- Preference
- 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
- Leadership
- 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.
- Perfecting
- 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.
- Waiver
- 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.
- Claims
- 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
- Interests
- 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.
- Depository
- 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.
- Priority
- 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