Debt Finance Flashcards
What are the two classifications of debt finance?
1) Loan facilities
2) Debt securities
What is a key method of protection for lender in debt finance?
Security over assets
Is debt security and security for debt the same thing?
No, different things
What are the types of loan facilities?
1) Overdraft
2) Term loan
3) Revolving credit facility
What is an overdraft?
On-demand facility, interest paid on amount overdrawn
What is term loan?
Loan for fixed period of time, repayable on certain dates. Lender cannot demand early repayment unless in breach of agreement.
What is revolving credit facility?
Loan for specified amount of time, but can repeatedly borrow and re-pay loans up to the agreed maximum overall when it chooses.
What are debt securities?
In return for finance, investors are issued a paper acknowledging the debt.
What is an example of a debt security?
A bond
What is a bond?
Investor lends money in exchange for periodic interest payments and the repayment of the principal at maturity.
What is a convertible bond?
A bond which can be converted into shares in the issuer
What type of share is called a debt/equity hybrid?
A preference share – no voting rights, but rights to dividend
What are the main debt finance documents?
1) Term sheet
2) Loan agreement
3) Security document
What is included in a term sheet?
Key terms of transaction (loan amount, interest rate, fees to be paid, key representations, undertaking, events of default)
What is included in loan agreement?
Main commercial terms (amount of interest, dates, any fees due)
What is a debenture?
Two meanings:
1) S738, refers to any debt security issued by a company, including bonds and debenture stock, whether or not backed by company assets
2) In secured loans, a debenture is a document outlining lender’s security, separate from loan agreement, and is registered with Companies House
What is the meaning of representations in loan agreements?
Statements of fact as to legal and commercial matters, made on signing loan agreement and repeated periodically during life of loan – also referred to as representations and warranties
What is the meaning of undertakings in loan agreements?
Covenants (promise) to do or not do something
What is the meaning of event of default
If representations and/or undertakings are breached
