Niveau: Universiteit Leerjaar: N.v.t.
Keyword (page) Definition (page)
1 burn rate (p. 616) The burn rate of young businesses describes the speed with which cash is being depleted through time and can be used to project when the organization will again require outside funding. (p. 616)
2 business development companies (BDCs) (p. 625) Business development companies (BDCs) are publicly traded funds with underlying assets typically consisting of equity or equity-like positions in small, private companies. BDCs use a closed-end structure and trade on major stock exchanges, especially the NASDAQ. (p. 625)
3 buyouts (p. 618) In the context of private equity, buyouts are the purchase of a public company by an entity that has a private ownership structure. (p. 618)
4 call option view of private equity (p. 613) This call option view of private equity from the perspective of the investor reflects the frequent total losses and occasional huge gains of private equity investments, especially venture capital. (p. 613)
5 charge-off loans (p. 622) Charge-off loans are the loans of a financial institution or other lender that have been sold to investors and written off the books of the lender at a loss. (p. 622)
6 conversion price (p. 632) The conversion price is the price per share at which the convertible security can be exchanged into shares of common stock, expressed in terms of the principal value of the convertible security. (p. 632)
7 conversion ratio (p. 632) The conversion ratio is the number of shares of common stock into which each convertible security can be exchanged. (p. 632)
8 covenant-lite loans (p. 623) Covenant-lite loans are loans that place minimal restrictions on the debtor in terms of loan covenants. (p. 623)
9 distressed debt investing (p. 621) Distressed debt investing is the practice of purchasing the debt of troubled companies, requiring special expertise and subjecting the investor to substantial risk. (p. 621)
10 equity kicker (p. 620) An equity kicker is an option for some type of equity participation in the firm (e.g., options to buy shares of common stock) that is packaged with a debt financing transaction. (p. 620)
11 equity line of credit (p. 632) An equity line of credit (ELC) is a contractual agreement between an issuer and an investor that enables the issuer to sell a formula-based quantity of stock at set intervals of time. (p. 632)
12 haircut (p. 624) In finance, the term haircut usually refers to a percentage reduction applied to the value of securities in determining their value as collateral. (p. 624)
13 incurrence covenants (p. 623) Incurrence covenants typically require a borrower to take or not take a specific action once a specified event occurs. (p. 623)
14 junk bond (p. 618) Junk bonds are debt instruments with high credit risk, also referred to as high-yield, noninvestment-grade, or speculative- grade debt. (p. 618)
15 leveraged loans (p. 624) Leveraged loans are syndicated bank loans to non-investment grade borrowers. (p. 624)
16 maintenance covenants (p. 623) Maintenance covenants are stricter than incurrence covenants in that they require that a standard be regularly met to avoid default. (p. 623)
17 merchant banking (p. 619) Merchant banking is the practice whereby financial institutions purchase nonfinancial companies as opposed to merging with or acquiring other financial institutions. (p. 619)
18 middle market (p. 621) The middle market refers to companies that are not as large as those companies that have ready access to the financial markets but are larger than companies seeking venture capital. (p. 621)
19 negative covenants (p. 623) Negative covenants are promises by the debtor not to engage in particular activities, such as paying dividends or issuing new debt. (p. 623)
20 positive covenants (p. 623) Positive covenants are promises to do particular things, such as maintain a specified cash level. (p. 623)
21 private equity firms (p. 614) Private equity firms invest in private equity and serve as managers to private equity funds. (p. 614)
22 private equity funds (p. 614) Private equity funds are investment pools created to hold portfolios of private equity securities. (p. 614)
23 private investments in public equity (PIPE) (p. 631) Private investments in public equity (PIPE) transactions are privately issued equity or equity-linked securities that are placed outside of a public offering and are exempt from registration. (p. 631)
24 prudent person standard (p. 617) The prudent person standard is a requirement that specifies levels of care that should be exercised in particular decision- making roles, such as investment decisions made by a fiduciary. (p. 617)
25 segmentation (p. 619) Segmentation in this context denotes the grouping of market participants into clienteles that focus their activities within specific areas of the market, rather than varying their range of activities more broadly throughout all available opportunities. (p. 619)
26 story credit (p. 621) A story credit is a debt issue with credit risk based on unusual circumstances, and may involve special aspects, such as corporate reorganizations, that distinguish their analysis from more traditional circumstances and as such involve a story. (p. 621)
27 structured PIPEs (p. 633) Structured PIPEs include more exotic securities, like floating-rate convertible preferred stock, convertible resets, and common stock resets. (p. 633)
28 syndicated (p. 624) The term syndicated refers to the use of a group of entities, often investment banks, in underwriting a security offering or, more generally, jointly engaging in other financial activities. (p. 624)
29 toxic PIPE (p. 633) A toxic PIPE is a PIPE with adjustable conversion terms that can generate high levels of shareholder dilution in the event of deteriorating prices in the firm’s common stock. (p. 633)
30 traditional PIPEs (p. 632) The large majority of PIPE transactions are traditional PIPEs, in which investors can buy common stock at a fixed price. (p. 632)
31 underlying business enterprises (p. 615) Underlying business enterprises in private equity are the unlisted, typically small businesses seeking to grow through investment from private equity funds or private equity firms. (p. 615)
32 venture capital (VC) (p. 616) Venture capital (VC), the best known of the private equity categories, is early-stage financing for young firms with high potential growth that do not have a sufficient track record to attract investment capital from traditional sources, like public markets or lending institutions. (p. 616)
33 venture capital securities (p. 616) Venture capital securities are the privately held stock, or equity-linked securities, that venture capitalists obtain when investing in business ventures that are striving to become larger and to go public. (p. 616)
34 vintage year (p. 614) The year a particular private equity fund commences operations is known as its vintage year. (p. 614)
35 20-bagger (p. 639) The terminology 20-bagger indicates a company that appreciates in value 20-fold compared to the cost of the VC investment. (p. 639)
36 angel investing (p. 644) Angel investing refers to the earliest stage of venture capital, in which investors fund the first cash needs of an entrepreneurial idea. (p. 644)
37 auction process (p. 664) An auction process involves bidding among several private equity firms, with the deal going to the highest bidder. (p. 664)
38 business plan (p. 639) The business plan should clearly state the business strategy, identify the niche that the new company will fill, and describe the resources needed to fill that niche, including the expenses, personnel, and assets. (p. 639)
39 buy-and-build strategy (p. 659) A buy-and-build strategy is an LBO value-creation strategy involving the synergistic combination of several operating companies or divisions through additional buyouts. (p. 659)
40 buy-in management buyout (p. 654) A buy-in management buyout is a hybrid between an MBI and an MBO in which the new management team is a combination of new managers and incumbent managers. (p. 654)
41 buyout-to-buyout deal (p. 663) A buyout-to-buyout deal takes place when a private equity firm sells one of its portfolio companies to another buyout firm. (p. 663)
42 capital calls (p. 641) Capital calls are options for the manager to demand, according to the subscription agreement, that investors contribute additional capital. (p. 641)
43 club deal (p. 664) In a club deal, two or more LBO firms work together to share costs, present a business plan, and contribute capital to the deal. (p. 664)
44 committed capital (p. 641) Committed capital is the cash investment that has been promised by an investor but not yet delivered to the fund. (p. 641)
45 compound option (p. 646) A compound option is an option on an option. In other words, a compound option allows its owner the right but not the obligation to pay additional money at some point in the future to obtain an option. (p. 646)
46 conglomerates (p. 658) Conglomerates have many different divisions or subsidiaries, often operating in completely different industries. (p. 658)
47 early-stage venture capital (p. 645) First or early-stage venture capital denotes the funding after seed capital but before commercial viability has been established. (p. 645)
48 efficiency buyouts (p. 658) Efficiency buyouts are LBOs that improve operating efficiency. (p. 658)
49 entrepreneurship stimulators (p. 658) Entrepreneurship stimulators are LBOs that create value by helping to free management to concentrate on innovations. (p. 658)
50 escrow agreement (p. 641) There is often an escrow agreement, in which a portion of the manager’s incentive fees are held in a segregated account until the entire fund is liquidated. (p. 641)
51 exit plan (p. 639) The exit plan describes how venture capitalists can liquidate their investment in the start-up company to realize a gain for themselves and their investors. (p. 639)
52 expansion stage venture capital (p. 645) Expansion stage (i.e., Second or late-stage) venture capital fills the cash flow deficiency once commercial viability is established. (p. 645)
53 first stage venture capital (p. 645) First or early-stage venture capital denotes the funding after seed capital but before commercial viability has been established. (p. 645)
54 golden parachute (p. 655) A generous compensation scheme, known as a golden parachute, is often given to top managers whose careers are being negatively affected by a corporate reorganization. (p. 655)
55 J-curve (p. 643) The J-curve is the classic illustration of the early losses and later likely profitability of venture capital. (p. 643)
56 leveraged buyout (LBO) (p. 652) A leveraged buyout (LBO) is distinguished from a traditional investment by three primary aspects: (1) an LBO buys out control of the assets, (2) an LBO uses leverage, and (3) an LBO itself is not publicly traded. (p. 652)
57 limited liability (p. 640) Limited liability is the protection of investors from losses that exceed their investment. (p. 640)
58 management buy-in (MBI) (p. 654) A management buy-in (MBI) is a type of LBO in which the buyout is led by an outside management team. (p. 654)
59 management buyout (MBO) (p. 652) A management buyout (MBO) is a buyout that is led by the target firm’s current management. (p. 652)
60 mezzanine venture capital (p. 646) Mezzanine venture capital, or pre-IPO financing, is the last funding stage before a start-up company goes public or is sold to a strategic buyer. (p. 646)
61 milestone (p. 647) A milestone is a set of goals that must be met to complete a phase and usually denotes when the entrepreneur will be eligible for the next round of financing. (p. 647)
62 second or late-stage venture capital (p. 645) Second or late-stage (i.e., expansion stage) venture capital fills the cash flow deficiency once commercial viability is established. (p. 645)
63 secondary buyout (p. 654) In a secondary buyout, one private equity firm typically sells a private company to another private equity firm. (p. 654)
64 seed capital stage (p. 644) The seed capital stage is the first stage where VC firms invest their capital into a venture and is typically prior to having established the viability of the product. (p. 644)
65 sourcing investments (p. 642) Sourcing investments is the process of locating possible investments (i.e., generating deal flow), reading business plans, preparing intense due diligence on start-up companies, and determining the attractiveness of each start-up company. (p. 642)
66 turnaround strategy (p. 659) A turnaround strategy is an approach used by LBO funds that look for underperforming companies with excessive leverage or poor management. (p. 659)
67 venture capital fund (p. 639) A venture capital fund is a private equity fund that pools the capital of large sophisticated investors to fund new and start-up companies. (p. 639)
68 absolute priority rule (p. 680) An absolute priority rule is a specification of which claims in a liquidation process are satisfied first, second, third, and so forth in receiving distributions. (p. 680)
69 acceleration (p. 675) Acceleration is a requirement that debt be repaid sooner than originally scheduled, such as when the senior lender can declare the senior debt due and payable immediately. (p. 675)
70 blanket subordination (p. 675) A blanket subordination prevents any payment of principal or interest to the mezzanine investor until after the senior debt has been fully repaid. (p. 675)
71 bridge financing (p. 672) Bridge financing is a form of gap financing—a method of debt financing that is used to maintain liquidity while waiting for an anticipated and reasonably expected inflow of cash. (p. 672)
72 Chapter 11 bankruptcy (p. 679) Chapter 11 bankruptcy attempts to maintain operations of a distressed corporation that may be viable as a going concern. (p. 679)
73 Chapter 7 bankruptcy (p. 679) Chapter 7 bankruptcy is entered into when a company is no longer viewed as a viable business and the assets of the firm are liquidated. Essentially, the firm shuts down its operations and parcels out its assets to various claimants and creditors. (p. 679)
74 cramdown (p. 680) A cramdown is when a bankruptcy court judge implements a plan of reorganization over the objections of an impaired class of security holders. (p. 680)
75 debtor-in-possession financing (p. 681) When secured lenders extend additional credit to the debtor company, it is commonly known as debtor-in-possession financing (DIP financing). (p. 681)
76 fulcrum securities (p. 678) Fulcrum securities are the more junior debt securities that are most likely to be converted into the equity of the reorganized company. (p. 678)
77 intercreditor agreement (p. 674) An intercreditor agreement is an agreement with the company’s existing creditors that places restrictions on both the senior creditor and the mezzanine investor. (p. 674)
78 PIK toggle (p. 671) A PIK toggle allows the underlying company to choose whether it will make required coupon payments in the form of cash or in kind, meaning with more mezzanine bonds. (p. 671)
79 plan of reorganization (p. 679) A plan of reorganization is a business plan for emerging from bankruptcy protection as a viable concern, including operational changes. (p. 679)
80 springing subordination (p. 675) A springing subordination allows the mezzanine investor to receive interest payments while the senior debt is still outstanding. (p. 675)
81 stretch financing (p. 673) In stretch financing, a bank lends more money than it believes would be prudent with traditional lending standards and traditional lending terms. (p. 673)
82 takeout provision (p. 675) A takeout provision allows the mezzanine investor to purchase the senior debt once it has been repaid to a specified level. (p. 675)
83 weighted average cost of capital (p. 669) The weighted average cost of capital for a firm is the sum of the products of the percentages of each type of capital used to finance a firm times its annual cost to the firm. (p. 669)