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Glossary of Terms

Set out below is a Glossary of standard transactional terminology for private equity and corporate finance transactions. Use the filter menu if you are looking for a specific term, or to navigate the Glossary alphabetically.

Debt financingThe use of borrowed money to finance a business. Different forms of debt can be used to raise money for working capital or capital expenditure such as overdrafts, bank loans, lease financing, commercial mortgage, invoice finance, asset finance or bonds. The loan can be secured or unsecured, short or long-term. The lender receives interest at an agreed rate and if the loan is not repaid may be entitled to take control of or sell assets which are owned by the company.

Equity financingFinancing business operations by selling share capital in the company as opposed to taking on debt. The shareholders may be entitled to dividends. This is higher risk than lending and consequently the returns are usually greater.

Mezzanine financingThis type of financing is used to bridge the gap between the secured debt a company can support, the available equity and the purchase price. As mezzanine financing is higher risk that senior debt the interest charged is higher. It also often carries warrants to subscribe to ordinary shares.

Senior debtThis is debt provided by a bank which is usually secured and ranked ahead of other loans and borrowing in the event of winding up.

BondA debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing. The interest rate and maturity date is often fixed so they are low risk. As a result of this the return is often low.

Bridging loanA form of short-term financing used until longer-term financing can be achieved.

Private equityA term which covers a range of transactions in which the source of finance is usually a fund established to invest specifically in unquoted companies rather than in publicly quoted shares. It includes forms of venture capital and MBO financing.

RecapitalisationThis is a change in the way a company is financed. It is a result of an injection of capital through either equity or debt.

Subordinated loanLoans which are ranked after other debt. It is normally repayable after other debt. As such it is more risky for the lender. An example of a subordinated loan is mezzanine finance.