Unitranche Debt
What is Unitranche Debt? A Unitranche Debt is a hybrid loan structure that combines senior and subordinated debt into one debt instrument. The borrower of this type of loan pays a blended interest rate that falls between the rate of the senior debt and subordinated debt. Unitranche debts started in the United States in 2005...
Debt Covenants
What are Debt Covenants? Debt covenants are restrictions that lenders (creditors, debt holders, investors) put on lending agreements to limit the actions of the borrower (debtor). In other words, debt covenants are agreements between a company and its lenders that the company will operate within certain rules set by the lenders. They are also called...
Back-End Ratio
What is the Back-End Ratio? The back-end ratio is a measure that signifies the portion of monthly income used to settle debts. Lenders, such as bondholders or issuers of mortgages, use the ratio to determine the borrower’s ability to manage and pay off monthly expenses. Therefore, the back-end ratio assesses the borrower’s risk. If the...
Junior Tranche
What is Junior Tranche Debt? A junior tranche is an unsecured debt that ranks lower in repayment priority than other debts in the event of default. It is also referred to as subordinated debt. When a company goes into liquidation or bankruptcy, the creditors receive payments in order of priority, with senior debt receiving payments...
Recapitalization
What is Recapitalization? Recapitalization is a type of corporate restructuring that aims to change a company’s capital structure. Usually, companies perform recapitalization to make their capital structure more stable or optimal. Recapitalization essentially involves exchanging one type of financing for another – debt for equity, or equity for debt. One example is when a company issues...
