Chapter 22

  1. burn rate
    The burn rate of young business 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.
  2. business development companies (BDCs)
    Business development companies (BDCs) are publicly traded funds with underlying assets typically consisting of equity or equity-like positions in small, privat companies. BDCs use a closed-end structure and trade on major stock exchanges, especially the NASDAQ.
  3. buyouts
    In the context of privat equity, buyouts are the purchase of a public company by an entity that has a privat ownership structure.
  4. call option view of privat equity
    This call option view of privat equity from the perspective of the investor reflects the frequent total losses and occasional huge gains of privat equity investments, especially venture capital.
  5. charge-off loans
    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.
  6. conversion price
    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.
  7. conversation ratio
    The conversation ratio is the number of shares of common stock into which each convertible security can be exchanged.
  8. covenant-lite loans
    Covenant-lite loans are loans that place minimal restrictions on the debtor in terms of loan covenants.
  9. distressed debt investing
    Distressed debt investing is the practice of purchasing the debt of troubled companies, requiring special expertise and subjecting the investor to substantial risk.
  10. equity kicker
    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.
  11. equity line of credit
    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.
  12. haircut
    In finance, the term haircut usually refers to a percentage reduction applied to the value of securities in determining their value as collateral.
  13. incurrence covenants
    Incurrence covenants typically require a borrower to take or not take a specific action once a specified event occurs.
  14. junk bond
    Junk bond are debt instruments with high credit risk, also referred to as high-yield, noninvestment-grade, or speculative-grade debt.
  15. leveraged loans
    Leveraged loans are syndicated bank loans to non-investment grade borrowers.
  16. maintenance covenants
    Maintenance covenants are stricter than incurrence covenants in that they require that a standard be regularly met to avoid default.
  17. merchant banking
    Merchant banking is the practice whereby financial institutions purchase nonfinancial companies as opposed to merging with or acquiring other financial institutions.
  18. middle market
    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.
  19. negative covenants
    Negative covenants are promises by the debtor not to engage in particular activities, such as paying dividends or issuing new debt.
  20. positive covenants
    Positive covenants are promises to do paricular things, such as maintain a specified cash level.
  21. private equity firms
    Private equity firms invest in private equity and serve as managers to private equity funds.
  22. private equity funds
    Private equity funds are investment pools created to hold portfolios of private equity securities.
  23. private investments in public equity (PIPE)
    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.
  24. prudent person standard
    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.
  25. segmentation
    Gegmentation 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.
  26. story credit
    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.
  27. structured PIPEs
    Structured PIPEs include more exotic securities, like floating-rate convertible preferred stock, convertible resets, and common stock resets.
  28. syndicated
    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.
  29. toxic PIPE
    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.
  30. traditional PIPEs
    The large majority of PIPE transactions are traditional PIPEs, in which investors can buy common stock at a fixed price.
  31. underlying business enterprises
    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.
  32. venture capital (VC)
    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.
  33. venture capital securities
    Venture capital securities are the privately held stock, or equity-linked securites, that venture capitalists obtain when investing in business ventures that are striving to become larger and to go public.
  34. vintage year
    The year a particular private equity fund commences operations is known as its vintage year.
Card Set
Chapter 22
Introduction to Private Equity