Glossary (L-R)
L
Landesbank
The German banking system is split into three types of bank: public, private and co-operatively owned banks. Landesbanks are historically publicly owned banks, in that they are typically partly owned by the German state that they originate from and also by the Sparkassen of that state. Their main purposes include providing liquidity to savings banks, acting on the behalf of businesses within the state on the national and international financial markets, financing regional development and also acting on the Sparkassen’s behalf in the realms of investment banking.
Lead manager
The commercial or investment bank with the primary responsibility for organising a syndicated bank credit or bond issue. The lead manager recruits additional lending or underwriting banks, negotiates terms of the issue with the issuer, and assesses market conditions.
Lease financings
An accountancy term referring to a method of financing the purchase of an asset. Instead of a company borrowing money from a bank and buying an asset, the bank buys the asset and leases it to the company with the agreement that after a certain amount of time the asset becomes the property of the company. The reason for this is that if the company goes bankrupt, the bank already owns the asset and does not have to negotiate with other creditors to get compensation for their loan. As the risk to the bank is lower, the interest paid by the company is less.
Lending
To grant the use of money or something else of value, with the understanding that it or something else of value will be returned at a future date.
Letter of credit
Letters of credit are widely used in the international import and export trade as a method of payment. In an export contract, the exporter may require the foreign importer to open a letter of credit at the importer’s local bank (the issuing bank) for the amount of goods. This will state that it is to be negotiable at a bank (the negotiating bank) in the exporter’s country in favour of the exporter; often, the exporter (who is called the beneficiary of the credit) will give the name of the negotiating bank. On presentation of the shipping documents (which are listed in the letter of credit) the beneficiary will receive payment from the negotiating bank.
Leveraged buy outs (LBOs)
A buy out occurs when a public company is taken off the stock market and becomes a private company, a leveraged buy out implies that a large amount of debt has to be taken on (borrowed funds) by the company in order to raise the funds needed to buy the equity from the shareholders. Usually the acquiring company or individuals use their own assets as security for the funds. The intention is that the loans will be repaid from the cash flow of the acquired company.
Limited/non-recourse project and acquisition debt finance
Limited recourse and project financing typically embraces the financing of long-term infrastructure or industrial projects and public services based upon a financial structure where the primary source of repayment is the cash flow generated by the project, with the project’s assets, rights, and interest held as security by the debt providers. Recourse, if any, to the project’s shareholders will be limited to specified events.
Loan agreement
Agreement to be executed by borrower, containing pertinent terms, conditions, covenants and restrictions.
M
Medium term notes
A flexible facility to issue notes of varying maturity, varying currency and either fixed or floating - all within one set of legal documentation.
Mezzanine finance/mezzanine debt
Finance that is usually provided by specialist financial institutions that is neither pure equity nor pure debt. It can take many different forms and can be secured or unsecured; it usually earns a higher rate of return than pure debt but less than equity. Conversely, it carries a higher risk then pure debt, but less than equity.
Management buy ins (MBIs)
A type of buy out whereby a management team from outside the company, usually specially formed for the purpose, and often backed by a venture capital organisation, acquires a company. This team of managers often assume the running of the company. Normal targets are small family-owned companies, which the owners wish to sell, or occasionally an unwanted subsidiary of a public company.
Management buy outs (MBOs)
The acquisition of a company or a subsidiary by existing management. It is frequently used as a means of divestment by companies seeking to focus on their core activities. The new owner-managers of the buy-out frequently improve its performance as they usually are well aware of any remedial action required and have a serious incentive in the form of their equity stake. Additional capital is provided by financial institutions and venture capitalists and also, in many cases, by allowing other employees to buy shares.
Money markets
Short-term cash, loan and deposit market, based on short-term interest rate trading.
N
Non-deliverable forwards (NDF)
A forward agreement in the FX market, normally in an exotic currency, whereby on the day that the forward contract expires the counterparties do not exchange currencies but instead the party who is on the loss-making side of the contract pays the difference between the forward rate and the spot rate in USD.
Non-recourse
A loan that is secured by some sort of collateral, usually property. The issuer can seize the collateral if the borrower defaults. These types of projects are characterised by high capital expenditures, long loan periods, and uncertain revenue streams.
North Rhine-Westphalia (NRW)
Nordrhein-Westfalen is Germany’s most economically active state, with an industrial base that makes it the world’s 13th largest economic region by GDP. This area is centred around the growing metropolis along the Ruhr Valley connecting a half-dozen major cities from Düsseldorf to Dortmund. As the name might suggest, the state is the combination of former states (or kingdoms) of North Rhine and Westphalia. As a Federal state it has a large amount of self governing, law making and influencing power, much more so than a county in the UK or a region in France.
O
OECD countries
The Organisation for Economic Cooperation and Development (OECD) is a group of 30 countries which share a commitment to democratic government and the market economy. Member countries are: Australia; Austria; Belgium; Canada; Czech Republic; Denmark; Finland; France; Greece; Hungary; Iceland; Ireland; Italy; Japan; Korea; Luxembourg; Mexico; Netherlands; New Zealand; Norway; Poland; Portugal; Slovak Republic; Spain; Sweden; Switzerland; Turkey; United Kingdom and United States.
Options
Contractual right to buy (call option) or sell (put option) a specified amount of underlying shares or currency at a fixed price during a specified period or on a specified date.
P
Pfandbriefe
This is a type of covered bond issued by German mortgage banks and representing the largest segment of German private debt.
Pre-export finance
Financing designed to enable companies to export products for the purposes of trade.
Pre-production finance
Financial solutions developed to allow for the production of new business projects.
Primary market
The market where newly issued financial products are initially offered to investors before trading on the secondary market commences.
Private banking
Specific client-focused banking that develops tailor-made solutions for high net-worth individuals and medium-sized institutional investors.
Private placements
The sale of unlisted securities directly to institutional investors, such as banks, mutual funds, insurance companies, pension funds and foundations.
Private equity
Private equity involves the provision of equity finance to unquoted businesses that require help starting out or that want to expand. This is done through the provision of tailor-made financing packages that meet the needs of investee companies attracted by this type of risk.
Promissory note
A document signed by a borrower promising to repay a loan under agreed-upon terms.
R
Rating agencies
Independent agencies who measure the safety of a bond and other forms of public borrowings, based on the issuer’s financial condition. The likelihood that a debt issuer will be able to meet scheduled interest and principal repayments is evaluated and a subsequent rating assigned from AAA (highest) to D (lowest). The two best known are Standard & Poor’s and Moody’s.
Real estate finance
Financing that assists companies undertaking real estate projects, such as the construction and development of residential or commercial property.
Repo
These are agreements to sell bonds with a simultaneous agreement to repurchase these bonds back at a later date, typically less than one year. A repo effectively enables the holder of a bond to borrow money while using the bond as collateral with the lender.
Risk management
Analysing the exposure to risk and determining the most appropriate way to handle such exposure.