LF Flashcards
364-day Facility
A revolving credit facility that has a term of a year or less
Administrative Agent Fee
Annual fee typically paid to administer the loan (including to distribute interest payments to the syndication group)
Amendment Fee
Compensation paid to lenders if the borrower asks for a change in terms
Arranger Fee
Fee earned by the arrangers for working on the deal. (A new
leveraged loan can carry an arranger fee of 1–5% of the total loan commitment, depending on the complexity of the transaction, market conditions, and whether the loan is underwritten)
Assignment Sale
- Secondary sale
- The assignee becomes a direct signatory to the loan and receives interest and principal payments directly from the administrative agent
Average Retail New Issue Fee
The average fee paid by the arranger to lenders joining the syndicate (tiered so that larger commitments earn larger
fees)
Average Break Price
The average price at which loans or bonds are initially traded in the secondary market after they close and allocate
Base Rates
- Minimum rate that the loan will pay
- LIBOR/Euribor are the
most common base rates, but these can include Prime, CD, and an array of other formats
Borrowing Base
- The specific assets that secure asset-based loans. - - The size of the attached credit line is limited by a margin formula tied
to the valuation of the underlying collateral
Bridge Loan
Loan that is intended to provide short-term financing to
provide a bridge to an asset sale, bond offering, stock offering, divestiture, etc.
Build-Out Financing
Financing that supports a particular project, such as a utility plant, a land development deal, a casino, or an
energy pipeline
Buy Back
When an issuer or its private equity sponsor/owner buys
back its senior debt below par in the secondary market in an attempt to reduce total debt
CAGR
- Compunded Annual Growth Rate
- Annualized measure of an investment’s growth rate over a multiyear time period
CapEx
- Capital Expenditure
- Investments in physical assets, such as a plant, property, or equipment
Cash-Flow Loan
Form of asset-based lending. A loan that may be secured by collateral but is repaid by cash flow
Circled
- When a loan or bond is fully subscribed at a given price
- After that, the loan or bond moves to
allocation and funding.
Clearing Yield
Yield at which an instrument first breaks into the market
CLO
- Collateralized Loan Obligation
- Pools a group of loans which are separated into tranches (with varying levels of risk)
- tiered with ratings ranging from AAA
to equity
Securitization
- Practice of pooling various types of assets (loans, mortgages etc) into tradeable securities
- Newly created securities called asset-backed securities
Bond Pricing
- Present Value of Future Cash Flows
(Discounting expected future cash flows back to present value using discount rate)
Discount Rate
Rate used to discount future cash flows
reflects required return considering
1. Credit risk
2. Term to Maturity
3. Market Liquidity
Yield to Maturity (YTM)
Internal Rate of Return an investor would earn if they hold the bond to maturity
Bond Issues At Discount
- Less than face value
- Quotes as %
- Offer higher yields than premium bonds
- ## Lower credit ratings, loonger maturities, carrying higher risk
Bond Issues at Premium
- High than Face Value
- Quotes as %
- Strong credit
- Lower effective yield
Credit Risk
(risk of default)
Potential loss due to borrower’s failure to repay a loan or meet financial obligation
Commercial Bank
Financial institution that provides services such as accepting deposits and issuing loans.
Commercial Paper
Unsecured short-term corporate debt
Committment Fee
Fee paid to lenders on undrawn amounts under a revolving credit or a term loan prior to draw-down
Evergreen
The option for the borrower—with consent of the syndicate group—to extend the facility each year for an additional year
First-Lien Debt
- Senior debt that holds the first priority on security
- Secured by collateral
- Lower Interest rates (less expensive for borowers)
Four-B loans
Loans rated BB+ to BB– by S&P Global and Ba1 to Ba3 by Moody’s
Hurdle Rate
The minimum required rate of return
Jumbo Loan
Transaction that is greater than $1 billion
LIBOR floor
An interest rate floor for a loan’s base rate
Mezzanine
A subordinated instrument that carries second-ranking
security or, if the capital structure also includes second-lien, third-ranking security.
Price Talk
The original target spread or spread range launched to the market
Tranche
A layer of debt in a structured vehicle such as a CLO or syndicated loan. Tranches within a single structure may have
different risk and reward profiles
Unsecured
Loans that are not backed by collateral
Project Objective
The goal is to create a system that values loans at facility level, allows for derivative trading and automates downsteam processes without removing loanIQ as golden source and its current process, by having an external system read loans at each point in time
Project Challenges
- Does not account for undrawn committed part of facility
- Does not support loans being an underlying for market products
- Does not allow to input buys and sells for trading desk (done manually in LoanIQ)
Discount Factor
1/(1+Discount Rate)^Period
Delayed Settlement Compensation
- Will apply unless stated otherwise
- Par Trade: will accrue from (and including) the date 10 Business Days after the Trade Date
- Distressed Trade: 20 Business Days after the Trade Date until (but excluding) the
Settlement Date
Credit Adjustment Spread
Bridges the gap between LIBOR and risk-free rates by adding a spread that reflects creditworthiness of the borrower
Zero Floor Applies
A zero floor will apply to the Cost of Carry Rate
whether calculated on the basis of an RFR or on the basis of an IBOR rate. Users should note that if zero floor applies to the Cost of Carry Rate when calculated on the basis of an RFR, the zero floor does not apply to the Credit Adjustment Spread.
Sensitivities needed to calculate Taylor PnL
- Mortgage Spread
- Key Rate Duration
- OAS Duration
- OAS Convexity
- Volatility Duration
Key Rate Duration
(Match in MARS)
IR Delta Par
Mortgage Spread
(Match in MARS)
CR Delta
OAS Duration
(Match in MARS)
CR Delta
OAS Convexity
(Match in MARS)
IR Gamma
Volatility Duration
(Match in MARS)
IR Vega
Agency Pass-Through
Type of security where principal and interest payments made by homeowners are passed through to investors
Key Partial rate Duration
- First order interest rate
- Sensitivity of a bond’s price to changes in interest rates at specific points along the yield curve
Option Adjusted Convexity
(OAS Convexity)
- Second order interest rate sensitivity
- measures variation in duration of the position when there is a change in interest rate
Mortage Spread Sensitivity
- First order mortgage spread sensitivity
- measure of how sensitive the MBS market value is to changes in the current coupon spread
Volatility Duration
(Vega)
- First order volatility sensitivity
- Measure sensitivity to parallel shifts in the volatility term structure
Option-Adjusted Duration
- First order volatility sensitivity
- Measures sensitivity of shifts in the OAS
Drawdown
- decline in the value of an investment from a peak to a subsequent trough
LoanIQ
- Helps financial institutions manage entire loan lifecycle
- Loan origination
- Loan servicing
- Collections
