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Glossary of Financial Terminology

A

Acquisition – The acquiring of one corporate entity by another through the exchange of funds or securities.

Alternatives – A form of debt relief referred to in contemporary times as debt restructuring or forbearance.

Asset – A property or resource that holds financial value and is owned or controlled by an individual, corporation or country.

B

Bootstrap Transaction – An alternative term for Leveraged buy-out.

C

Capital structure – The description and relationship of how a corporation’s financing sources are structured.

Collateral – Assets or properties with monetary value that are offered as security in exchange for funds when raising debt finance.

Consolidation – The merger of several smaller corporate entities into one larger organization.

D

Debt Financing – Financing that is secured against bonds, bills or notes, promising the repayment of the principal with interest back to the creditor.

Debt Restructuring – The process of altering the terms of a debt agreement in order to achieve a financial advantage.

E

Expansion – Using capital and financial resources to expand and grow a corporation either in volume, product offerings or expanded territory.

Equity – A form of capital that represents the value of an ownership stake or interest in a property, corporation or asset.

Equity Financing – Financing that is raised in exchange for ownership interest in the corporation.

F

Finance – Describes the process by which assets, investments, debts, capital, money and banking are organized and managed.

Forbearance – The postponement of obligated payments on a financial debt in order to allow the debtor a period of time to make-up for outstanding payments.

H

HLT – An acronym for highly-leveraged transaction (HLT) which is an alternative term for leveraged buy-out.

L

Leveraged Buy-Out (LBO) – When a corporation is purchased through highly leveraged financing by way of borrowing against assets to raise the necessary purchasing funds.

M

Merger – The consolidation of two corporate entities through the exchange or transfer of securities.

Mezzanine Debt – A form of hybrid capital that is senior only to common shares and may incorporate certain characteristics of both debt-based and equity-based financing.

R

Recapitalization – The re-organization of a corporation’s capital structure.

S

Senior Debt – The first level of a corporation’s liabilities which is paid out first ahead of all other creditors.

W

WACC – An acronym for “Weighted Average Cost of Capital” which describes the average amount a corporation must pay out to its security holders in the form of interest.

Working Capital (WC) – A financial metric that determines a corporation’s operating liquidity which is calculated by subtracting a corporation’s current liabilities from its current assets.

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Management Buyout (MBO)

What is a Management Buyout (MBO)?
Management Buyout is a transaction where the management team is involved in the acquisition in part or all of the business they manage. Financing sources of an MBO transaction may be obtained from a combination of personal funds, bank loan, equity finance, seller finance, and mezzanine finance.

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Be Prepared!

Business owners today can take their strong balance sheets and earnings to senior banks or other capital providers to begin discussions on improving their borrowing terms. To be recession ready, ask for:

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Middle Market Divergence Ahead

Looking Back:
Institutional lenders have been adding money supply to the credit market, reducing interest rates on Middle Market loans
Looking Around:
The Upper Middle Market is benefitting the most from this borrower-friendly market.
Looking Forward:
The lower Middle Market may expect debt pricing to increase.

Capital continues to flow into institutional leveraged loan funds, with a 9.0% increase in supply to the credit market year-over year. (Figure 1).

This surge has led to a yield that has been falling since late 2015 (Figure 2) and has created competitive pressure for traditional senior banks, forcing them to relax their internal loan application standards (Figure 3).


The effects of strong institutional lending activities and loosening senior bank standards are apparent in the Middle Market.  Lenders have become more tolerant of leverage ratios in order to win business (Figure 4).  Falling interest rates and increased Debt-to-EBITDA trends have created a friendly credit market for borrowers.


While this market seems great for the Middle Market borrower as a group, we know from our last publication that the size of the business really matters here.
When we dissect the Middle Market into categories by size, only the upper segment of the Middle Market has seen an increase in deal counts in 2017, while the bottom two segments show a significant decline (Figure 5). Large companies with a higher EBITDA are preferred by lenders and are enjoying this higher leverage ratio lending appetite. (Figure 6).



It is our opinion that the increase in supply to the credit market will continue because of interest rate expectations.  We expect the soft lending environment of the lower Middle Market to continue.  As a result, interest rates are likely to rise for these borrowers.

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