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Corporate Lending > Types Of Loans > Flashcards

Types Of Loans Flashcards

1
Q

Bridge Loan

A

Short term loan (several months) to cover until permanent financing can be achieved. Typically high interest is set.

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2
Q

Term Loan

A

Loan repaid in regular payment over a set period of time.

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3
Q

Revolver Loan

A

Loan facility allowing a borrower to borro up to a certain limit from month to month e.g. credit card.

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4
Q

Leveraged Loan

A

Loan made to borrowers who already have high levels of debt and / or a low credit rating.

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5
Q

Institutional Loan

A

Term loan where a portion is carved out for non bank institutional Investors. Typically priced higher due to longer maturity & bullet repayments.

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6
Q

Project Finance

A

Loan that relies on a projects cashflow for repayment with the projects assets, rights and interests held as collateral.

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7
Q

Discount Loan

A

Loan where interest and fees are deducted from the drawdown at the time it is paid to the borrow. E.g. £100 loan with £3 fees means borrower can access £97.

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8
Q

Cap Ex

A

Loan to acquire assets or improve existing assets.

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9
Q

VAT

A

Loan to finance VAT e.g. real estate asset acquisition

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10
Q

Spot loan

A

Unconfirmed loans usually used by well known borrower’s for urgent / short term cash requests.

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11
Q

Receivables due discounting

A

Loan where receivables due to a borrower (i.e. Seller) is given to the lender for a treasury advance.

With recourse = buyer pays seller
Without recourse = buyer pays lender

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12
Q

Letter of credit

A

Document issued by a lender that guarantees a buyer of goods will pay the seller on time in full.

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13
Q

Discounting a letter of credit

A

Buyers lender provides a % of the amount upfront if buyer wants to pay in the longer term.

Can be with or without recourse.

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14
Q

Export Credit

A

Loan dedicated for enabling a commercial contract between a national supplier and a foreign buyer.

Export Credit Agencies guarantee the loan.

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15
Q

What is Export Credit Agency Premium?

A

A few paid to ECA for being the guarantor. It can either be paid through a capital increase, interest increase or paid seperately by the borrower (all via a bank).

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16
Q

What is stabilisation in Export Credit?

A

A principle that allows a borrower to get it’s export credit at a fixed interest rate (governed by int rules) and guarantees the lender a spread by the stabilisation agent.

If export credit rate > market rate, agent receives the difference from the stab agent.

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17
Q

Swingline

A

A short term back up line of credit that can be called at a very short notice to cover shortfalls from other commitments.

It is usually part of the pool of the shortfall commitment (e.g. 3 lenders in first loan v 2 lenders in swingline).

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18
Q

Structured Finance

A

Encompasses services that involve highly complex financial transactions offered for companies with unique financing requirements (e.g. aircraft build).

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19
Q

What is the deal structure

A

Deal - Facility - Loan - Collateral (against either loan or facility)

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20
Q

What is Originate to Distribute?

A

Selling positions in loans to buy side actors on the secondary market.

Can either sell full Treasury and Risk positions ( i.e. sub participant is sold a part of the deal) or just risk (i.e. sub participant act as a guarantor).

21
Q

What are the 2 trading strategies in loan trading?

A

Back to Back Trading: Buy & Sell in the same day.

Position Trading: keep a position in a portfolio for a short period (regulatory requirement to not hold for 3 months).

22
Q

What is the Plan Trading mechanism?

A

Buyer & Seller agree a price
Deal is agreed.
Sellers sends confirmation to the buyer
Deal is settled
2 Transfer certificates are sent to the Agent, one from both the Seller and the Buyer

23
Q

What fees are involved in loan trading?

A

Price variation fees paid to buyer (difference in market price v buyer price)

Delay compensation fees paid to seller

Cost of carry fees paid to buyer (incase of delay)

Breakage fee

Transfer fee

24
Q

What are the 4 types of interest rate?

A

Fixed
Repriceable (indexed on a market rate with repricing periods)
Variable (indexed on daily rates and repriced daily)
Structured (variable interest that is capped / floored)

25
Q

How can interest be paid?

A

In arrears - at the end of a cycle.

In advance - at the start of a cycle.

26
Q

How is interest amount calculated?

A

Principal x IR(yearly) X time basis

E.g. time basis actual number of days between 2 cycles / 365 (but can alter depending on currency and ISDA conventions.

27
Q

What are the 3 types of fees?

A

Upfront / Transfer fees

Event / Agency fees

Ongoing fees & Risk margin

28
Q

What are upfront & transfer fees?

A

Both are done on a deal level.

Upfront fees are one time fees paid to the lender for its commitment to finance (e.f. arrangement fee).

Transfer fees are one time fees paid by pool in event of transfer.

29
Q

What are Event / Agency fees?

A

Both done either at a facility or loan level.

Event fees are one time fees based on specific events occuring during the credit (e.g. amendment fee).

30
Q

What are Ongoing fees & Risk margin.

A

Ongoing fees are charged to the borrower based on a portion of the commitment and usually paid quarterly (e.g. Utilisation fee)

Risk Margin are fees to the risk taking sub-participant (borrower pays lender who pays sub-participant).

Similar to interest rates they are defined by fee rate, amount of use, fee cycle and either paid in arrears or advance.

31
Q

What are funding costs?

A

Interest costs paid by the bank for the use of money (typically branch will pay the Treasury Desk)

32
Q

How are funding costs calculated?

A

Dependent on:
- loan maturity
- Funding cost of central banks
- Market interbank rate (e.g. euribor)
- Additional spread to charge for service costs, insurance etc.

Most of the time it is simply market interbank + spread.

33
Q

What are notices?

A

Written documents that specifies terms and conditions of a loan and are generated / sent following certain events e.g. drawdowns, repayments etc.

34
Q

What are bills?

A

Document sent to the borrower by the host bank when a repayment is required.

35
Q

What is restructuring?

A

Reorganisation of outstanding obligations e.g. reducing burden of debt through rates paid by borrower.

36
Q

What is refinancing?

A

Replacement of existing obligation with a debt obligation under different terms.

37
Q

Why may refinancing be done?

A

Take advantage of better interest rate

Consolidate debts into 1

Reduce monthly repayment amount

Reduce alter risk (i.e. VaR to fixed)

Free up cash

38
Q

What are club deals?

A

Deals which have been restructured following negotiations between borrower (debtor nation) and the Paris or London club.

39
Q

What is a agreement term sheet?

A

Restructure / refinance agreement terms made by borrower and lender.

40
Q

What is interest capitalisation?

A

Addition of all interest that has accrued to the principal loan amount.

It’s a contractual process that needs to be agreed by borrowers and lenders either at the start of during the lifecycle of the deal.

41
Q

What is PIK?

A

Payment In Kind - Loan that doesn’t provide any cash flows from the borrower to lender between drawdown date and maturity date.

PIK interest accrues and capitalises periodically over life of debt this increasing the underlying principal.

PIK margin is a fee charged to borrower for the loan.

42
Q

What is the current UK interest rate and inflation rate?

A

Interest rate: 5.25%

Inflation rate: 6.8%

43
Q

How does interest rate influence inflation rates?

A

Raising interest rates should decrease inflation rates, because less people are likely to borrow & will save more / spend less. This decreases demand and increases supply meaning prices decline / rise slower.

44
Q

What is the current US interest rate and I flatiron rate?

A

Interest rate: 5.5%

Inflation rate: 3.2%

45
Q

What is the Agile delivery cycle?

A

User Requirements
Functional Design
Technical Design
Development
Testing
Deployment
Support

46
Q

What are the benefits of Agile and benefits of waterfall?

A

Agile:
- Constantly developing and improving
- Good for changing requirements
- Decreased Risk
- Easy to adapt

Waterfall:
- Good for initial deployments where requirements are unlikely to change.
- Easier to map dependencies.

47
Q

What are the benefits of on prem and cloud?

A

On-Prem:
- Complete control on data
- Control of compliance

Cloud:
- No upfront cost, pay as you go model
- Don’t need internal resources
- More flexibility and easier to scale

48
Q

What is the standard for user story and acceptance criteria writing?

A

User Story:
- As a
- I want
- So that

Acceptance Criteria:
- Given that
- When
- Then
-

49
Q

What are the largest assets, liabilities and equity on a bank’s balance sheets?

A

Current Assets:
- Receivables from Customers

Non-Current Assets:
- Buildings, Equipment

Current liabilities:
- Short term loans, accounts payables

Non-Current liabilities:
- long term loans, long term leases

Equity:
- Stocks
- Capital Requirements

Assets = Liabilities + Equity

Corporate Lending (2 decks)

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