Reference

Glossary

66 private credit terms in plain English, with the formula where there is one. Not sure how a term applies to your case? Ask the IC coach.

66 terms

Amortization: Principal repaid on a schedule before maturity. Direct lending loans often amortize only about 1% a year, leaving most repayment to refinancing.
Annual recurring revenue: The yearly value of subscription contracts in force. Recurring-revenue loans are sized on ARR rather than EBITDA when the company isn't yet profitable.
Appropriation risk: The risk that a government doesn't budget the money to pay what it owes under a contract.
Availability payment: A payment from a public authority for keeping an asset available to a set standard, regardless of usage. Deductions apply if it isn't.
Borrowing base: The maximum a borrower can draw, set by eligible collateral times advance rates (for example 85% of eligible receivables). It shrinks automatically as collateral weakens.
Bridge loan: Short-term debt repaid by a specific later event, such as a bond issue or asset sale. The key question is what happens if the take-out slips.
Burn multiple: Cash burned for each dollar of new ARR. Lower is more efficient; it tells a lender how long liquidity lasts per unit of growth.
Call protection: A fee or lockout if the borrower repays early, protecting the lender's expected return.
Cap rate: How the market prices a property's income. A higher cap rate means a lower value for the same NOI.
Capex: Spending on long-lived assets. Split maintenance capex (needed to keep the business running) from growth capex (optional) when stressing cash flow.
Cash sweep: A requirement to use some or all spare cash, exit proceeds or rent to repay the loan, usually triggered when a ratio weakens.
Concentration limit: A cap on how much eligible collateral can come from one obligor, industry or region, so one failure can't sink the pool.
Construction risk: The risk a project is late or over budget before it earns revenue. Mitigated with fixed-price contracts, contingencies and completion guarantees.
Covenant headroom: How far EBITDA can fall before a covenant is breached, usually as a percentage. Thin headroom means an early default trigger.
Covenant-lite: A loan with no maintenance covenants, only incurrence tests. The lender loses its early warning and negotiating leverage.
Customer concentration: How much revenue depends on a few customers. Losing a top customer can break covenants on its own.
Debt service coverage ratio: Cash available for debt service divided by interest plus principal due in the period. The core test in project and infrastructure finance.
Debt yield: NOI as a percentage of the loan. It shows how much income the loan's balance earns, regardless of interest rates or valuations; permanent lenders often require 8–10%.
Delinquency trigger: A pool-performance level that, once breached, cuts advances or sends cash to repay the lender early.
Downside case: A plausible bad outcome, ideally anchored in the company's own history or a named shock, showing what happens to leverage, coverage, liquidity and covenants.
DPI: Cash a fund has returned to investors divided by the capital they have paid in. A low DPI late in a fund's life puts pressure on the GP to return cash.
EBITDA: Operating earnings before non-cash charges and financing costs. The base for most leverage and coverage ratios, so check what adjustments were added back.
EBITDA adjustments: Amounts added back to reported EBITDA, such as one-off costs or expected synergies. Aggressive add-backs make leverage look lower than it is.
Enterprise value: The value of the whole business to all capital providers. Comparing debt to a conservative EV shows how much cushion lenders have.
Equity cure: A right for the sponsor to inject equity that counts as EBITDA (or repays debt) to fix a covenant breach. Limits on how often it can be used matter.
Excess spread: Yield on the asset pool minus funding costs and losses. It is the first cushion that absorbs credit losses in specialty finance.
FCF to debt: Free cash flow as a percentage of total debt: roughly how fast the business could repay its debt from cash generation alone.
First lien: Debt with the first claim on the collateral. It recovers first in a default.
First-lien leverage: Only the debt that ranks first against the collateral, divided by EBITDA. It shows how much value sits beneath the first-lien lender before junior debt is wiped out.
Fixed charge coverage ratio: A stricter coverage test that also counts capex, cash taxes and scheduled debt repayment. Often a maintenance covenant.
Free cash flow: Cash left after operating costs, capex, taxes, working capital and interest. It is what actually repays debt.
Future funding: Loan money held back and released later for leasing costs or capex, ideally only against signed leases or completed work.
Gross revenue retention: Revenue kept from last year's customers before any upsell. It measures how sticky the product is; it can't exceed 100%.
Incremental facility: Permission for the borrower to add more debt of the same ranking later. Without caps it can dilute existing lenders.
Incurrence covenant: A test that only applies when the borrower takes an action, such as raising more debt or paying a dividend. Common in covenant-lite loans and bonds.
Interest coverage: How many times EBITDA covers cash interest. Below about 2.0x, a modest earnings drop starts to threaten interest payments.
Leverage (total): Total debt divided by EBITDA, in turns (x). The first number an IC looks at: how many years of earnings it would take to repay all debt.
Liquidity: Cash on hand plus undrawn committed facilities. It decides how long a business can survive a bad patch before it misses a payment.
Loan to value: Loan amount divided by the value of the asset or company securing it. Lower LTV means more equity cushion beneath the lender.
Maintenance covenant: A ratio the borrower must meet every test period (often quarterly), such as maximum leverage or minimum coverage. It gives the lender an early seat at the table.
Margin: EBITDA as a percentage of revenue. A falling margin is often the first sign of cost pressure a business can't pass on.
Maturity wall: A cluster of debt coming due at once. Check whether junior debt matures before your loan, which can force an early crisis.
NAV loan: A loan to an investment fund secured on the value of the investments it already owns, repaid from exits.
Net leverage: Leverage after subtracting cash. Most covenants are written on net leverage, so check which one the term sheet uses.
Net operating income: A property's rent and other income less its operating costs, before interest, capex and leasing costs. The base for debt yield, cap rates and coverage.
Net revenue retention: Revenue kept from last year's customers including upsell, minus churn and downgrades. Above 100% means existing customers grow.
OID: The loan is funded below face value (for example 98.5), giving the lender extra return up front.
Pass-through: Contract terms that let a company charge customers for input-cost increases. The lag before prices reset is where margin gets squeezed.
PIK: Interest added to the loan balance instead of paid in cash. It preserves the borrower's cash but grows the loan, often when collateral is weakest.
Rate cap: A hedge the borrower buys so its floating base rate can't exceed a set strike. It protects coverage when rates rise.
Recovery: What the lender gets back after a default, as a percentage of the loan. Estimate it from what the business or collateral would sell for, minus anything ranking ahead.
Restricted payments: Payments to equity holders, such as dividends or buybacks. Loose restricted-payment rules let value leave the company ahead of lenders.
Second lien: Debt secured on the same collateral but repaid only after the first lien. Higher price, lower recovery.
SOFR: The floating base rate most US loans are priced over. Loan coupon = SOFR + spread.
SOFR floor: A minimum base rate used in the coupon, so lender income doesn't fall below a set level when rates drop.
Sponsor: The private equity firm that owns the borrower. Its equity sits beneath the debt, and its track record and willingness to support the company matter.
Spread: The fixed amount above the base rate, in basis points (100 bps = 1%). It should reflect the risk the lender takes.
Springing maturity: A clause that brings a loan's maturity forward if other debt isn't refinanced in time, protecting the lender from a junior maturity wall.
Stabilized NOI: The NOI a property should earn once leasing and renovation are complete. Lenders build their own rather than relying on the sponsor's.
Step-down: A covenant level that tightens over time, for example maximum leverage falling from 5.25x to 4.75x after two years. Test your downside against the stepped-down level too.
Structural subordination: Being repaid only after another set of creditors because you lend to a parent or holding company whose value sits in subsidiaries with their own debt.
Subscription line: A short-term loan to a fund secured on its investors' uncalled commitments, used to bridge capital calls.
Take-out: The planned source of repayment for a bridge loan. Stress what happens if it is late, smaller or never arrives.
Ticking fee: A fee paid on committed but undrawn financing while a deal waits to close.
Unitranche: A single loan that combines senior and junior debt at one blended price, common in direct lending. Simpler for the borrower; lenders may split it privately.
Working capital: Cash tied up in receivables and inventory, net of payables. A growing business usually absorbs working capital, which reduces free cash flow.

Reference

Glossary

66 private credit terms in plain English, with the formula where there is one. Not sure how a term applies to your case? Ask the IC coach.

66 terms

Amortization: Principal repaid on a schedule before maturity. Direct lending loans often amortize only about 1% a year, leaving most repayment to refinancing.
Annual recurring revenue: The yearly value of subscription contracts in force. Recurring-revenue loans are sized on ARR rather than EBITDA when the company isn't yet profitable.
Appropriation risk: The risk that a government doesn't budget the money to pay what it owes under a contract.
Availability payment: A payment from a public authority for keeping an asset available to a set standard, regardless of usage. Deductions apply if it isn't.
Borrowing base: The maximum a borrower can draw, set by eligible collateral times advance rates (for example 85% of eligible receivables). It shrinks automatically as collateral weakens.
Bridge loan: Short-term debt repaid by a specific later event, such as a bond issue or asset sale. The key question is what happens if the take-out slips.
Burn multiple: Cash burned for each dollar of new ARR. Lower is more efficient; it tells a lender how long liquidity lasts per unit of growth.
Call protection: A fee or lockout if the borrower repays early, protecting the lender's expected return.
Cap rate: How the market prices a property's income. A higher cap rate means a lower value for the same NOI.
Capex: Spending on long-lived assets. Split maintenance capex (needed to keep the business running) from growth capex (optional) when stressing cash flow.
Cash sweep: A requirement to use some or all spare cash, exit proceeds or rent to repay the loan, usually triggered when a ratio weakens.
Concentration limit: A cap on how much eligible collateral can come from one obligor, industry or region, so one failure can't sink the pool.
Construction risk: The risk a project is late or over budget before it earns revenue. Mitigated with fixed-price contracts, contingencies and completion guarantees.
Covenant headroom: How far EBITDA can fall before a covenant is breached, usually as a percentage. Thin headroom means an early default trigger.
Covenant-lite: A loan with no maintenance covenants, only incurrence tests. The lender loses its early warning and negotiating leverage.
Customer concentration: How much revenue depends on a few customers. Losing a top customer can break covenants on its own.
Debt service coverage ratio: Cash available for debt service divided by interest plus principal due in the period. The core test in project and infrastructure finance.
Debt yield: NOI as a percentage of the loan. It shows how much income the loan's balance earns, regardless of interest rates or valuations; permanent lenders often require 8–10%.
Delinquency trigger: A pool-performance level that, once breached, cuts advances or sends cash to repay the lender early.
Downside case: A plausible bad outcome, ideally anchored in the company's own history or a named shock, showing what happens to leverage, coverage, liquidity and covenants.
DPI: Cash a fund has returned to investors divided by the capital they have paid in. A low DPI late in a fund's life puts pressure on the GP to return cash.
EBITDA: Operating earnings before non-cash charges and financing costs. The base for most leverage and coverage ratios, so check what adjustments were added back.
EBITDA adjustments: Amounts added back to reported EBITDA, such as one-off costs or expected synergies. Aggressive add-backs make leverage look lower than it is.
Enterprise value: The value of the whole business to all capital providers. Comparing debt to a conservative EV shows how much cushion lenders have.
Equity cure: A right for the sponsor to inject equity that counts as EBITDA (or repays debt) to fix a covenant breach. Limits on how often it can be used matter.
Excess spread: Yield on the asset pool minus funding costs and losses. It is the first cushion that absorbs credit losses in specialty finance.
FCF to debt: Free cash flow as a percentage of total debt: roughly how fast the business could repay its debt from cash generation alone.
First lien: Debt with the first claim on the collateral. It recovers first in a default.
First-lien leverage: Only the debt that ranks first against the collateral, divided by EBITDA. It shows how much value sits beneath the first-lien lender before junior debt is wiped out.
Fixed charge coverage ratio: A stricter coverage test that also counts capex, cash taxes and scheduled debt repayment. Often a maintenance covenant.
Free cash flow: Cash left after operating costs, capex, taxes, working capital and interest. It is what actually repays debt.
Future funding: Loan money held back and released later for leasing costs or capex, ideally only against signed leases or completed work.
Gross revenue retention: Revenue kept from last year's customers before any upsell. It measures how sticky the product is; it can't exceed 100%.
Incremental facility: Permission for the borrower to add more debt of the same ranking later. Without caps it can dilute existing lenders.
Incurrence covenant: A test that only applies when the borrower takes an action, such as raising more debt or paying a dividend. Common in covenant-lite loans and bonds.
Interest coverage: How many times EBITDA covers cash interest. Below about 2.0x, a modest earnings drop starts to threaten interest payments.
Leverage (total): Total debt divided by EBITDA, in turns (x). The first number an IC looks at: how many years of earnings it would take to repay all debt.
Liquidity: Cash on hand plus undrawn committed facilities. It decides how long a business can survive a bad patch before it misses a payment.
Loan to value: Loan amount divided by the value of the asset or company securing it. Lower LTV means more equity cushion beneath the lender.
Maintenance covenant: A ratio the borrower must meet every test period (often quarterly), such as maximum leverage or minimum coverage. It gives the lender an early seat at the table.
Margin: EBITDA as a percentage of revenue. A falling margin is often the first sign of cost pressure a business can't pass on.
Maturity wall: A cluster of debt coming due at once. Check whether junior debt matures before your loan, which can force an early crisis.
NAV loan: A loan to an investment fund secured on the value of the investments it already owns, repaid from exits.
Net leverage: Leverage after subtracting cash. Most covenants are written on net leverage, so check which one the term sheet uses.
Net operating income: A property's rent and other income less its operating costs, before interest, capex and leasing costs. The base for debt yield, cap rates and coverage.
Net revenue retention: Revenue kept from last year's customers including upsell, minus churn and downgrades. Above 100% means existing customers grow.
OID: The loan is funded below face value (for example 98.5), giving the lender extra return up front.
Pass-through: Contract terms that let a company charge customers for input-cost increases. The lag before prices reset is where margin gets squeezed.
PIK: Interest added to the loan balance instead of paid in cash. It preserves the borrower's cash but grows the loan, often when collateral is weakest.
Rate cap: A hedge the borrower buys so its floating base rate can't exceed a set strike. It protects coverage when rates rise.
Recovery: What the lender gets back after a default, as a percentage of the loan. Estimate it from what the business or collateral would sell for, minus anything ranking ahead.
Restricted payments: Payments to equity holders, such as dividends or buybacks. Loose restricted-payment rules let value leave the company ahead of lenders.
Second lien: Debt secured on the same collateral but repaid only after the first lien. Higher price, lower recovery.
SOFR: The floating base rate most US loans are priced over. Loan coupon = SOFR + spread.
SOFR floor: A minimum base rate used in the coupon, so lender income doesn't fall below a set level when rates drop.
Sponsor: The private equity firm that owns the borrower. Its equity sits beneath the debt, and its track record and willingness to support the company matter.
Spread: The fixed amount above the base rate, in basis points (100 bps = 1%). It should reflect the risk the lender takes.
Springing maturity: A clause that brings a loan's maturity forward if other debt isn't refinanced in time, protecting the lender from a junior maturity wall.
Stabilized NOI: The NOI a property should earn once leasing and renovation are complete. Lenders build their own rather than relying on the sponsor's.
Step-down: A covenant level that tightens over time, for example maximum leverage falling from 5.25x to 4.75x after two years. Test your downside against the stepped-down level too.
Structural subordination: Being repaid only after another set of creditors because you lend to a parent or holding company whose value sits in subsidiaries with their own debt.
Subscription line: A short-term loan to a fund secured on its investors' uncalled commitments, used to bridge capital calls.
Take-out: The planned source of repayment for a bridge loan. Stress what happens if it is late, smaller or never arrives.
Ticking fee: A fee paid on committed but undrawn financing while a deal waits to close.
Unitranche: A single loan that combines senior and junior debt at one blended price, common in direct lending. Simpler for the borrower; lenders may split it privately.
Working capital: Cash tied up in receivables and inventory, net of payables. A growing business usually absorbs working capital, which reduces free cash flow.