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absolute priority rule
An absolute priority rule is a specification of which claims in a liquidation process are satisfied first, second, third, and so forth in receiving distributions.
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acceleration
Acceleration is a requirement that debt be repaid sooner than originally scheduled, such as when the senior lender can declare the senior debt due and payable immediately.
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blanket subordination
A blanket subordination prevents any payment of principal or interest to the mezzanine investor until after the senior debt has been fully repaid.
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bridge financing
Bridge financing is a form of gap financing - a method of debt financing that is used to maintain liquidity while waiting for an anticipated and reasonable expected inflow of cash.
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Chapter 11 bankruptcy
Chapter 11 bankruptcy attempts to maintain operations of a distressed corporation that may be viable as a going concern.
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Chapter 7 bankruptcy
Chapter 7 bankruptcy is entered into when a company is no longer viewed as a viable business and the assets of the firm are liquidated. Essentially, the firm shuts down its operations and parcels out its assets to various claimants and creditors.
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cramdown
A cramdown is when a bankruptcy court judge implements a plan of reorganization over the objections of an impaired class of security holders.
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debtor-in-possession financing
When secured lenders extend additional credit to the debtor company, it is commonly known as debtor-in-possession financing (DIP financing).
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fulcrum securities
Fulcrum securities are the more junior debt securities that are most likely to be converted into the equity of the reorganized company.
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intercreditor agreement
An intercreditor agreement is an agreement with the company's existing creditors that places restrictions on both the senior creditor and the mezzanine investors.
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PIK toggle
A PIK toggle allows the underlying company to choose whether it will make required coupon payments in the form of cash or in kind, meaning with more mezzanine bonds.
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plan of reorganization
A plan of reorganization is a business plan for emerging from bankruptcy protection as a viable concern, including operational changes.
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springing subordination
A springing subordination allows the mezzanine investor to receive interest payments while the senior debt is still outstanding.
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stretch financing
In stretch financing, a bank lends more money than it believes would be prudent with traditional lending standards and traditional lending terms.
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takeout provision
A takeout provision allows the mezzanine investor to purchase the senior debt one it has been repaid to a specified level.
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weighted average cost of capital
The weighted average cost of capital for a firm is the sum of the products of the percentages of each type of capital used to finance a firm times its annual cost to the firm.
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