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29 terms

Glossary

The terms deal teams argue about, defined plainly, each linked to the workflow that checks for it. General descriptions, not legal advice; the operative language is always in the document.

Prompting AI methods
Giving a language model a written instruction, often with a document attached, and reading what it returns. The person checks the answer before using it.
Workflow (AI workflow) AI methods
A fixed sequence of steps, some done by a model, that runs the same way every time, such as extract a table, check it against rules, then write a summary.
Agent (AI agent) AI methods
A model that can choose which step to take next and use tools, such as search, a spreadsheet or a filing database, to finish a task. It still needs limits and human review.
Agentic workflow AI methods
A multi-step process where one or more agents handle parts of the work inside a defined flow, with checkpoints where a person approves or corrects the output.
Graph engineering (knowledge graphs) AI methods
Organising facts as entities and the links between them, such as borrower, lender, facility and filing, so questions that span many documents can be answered and traced to sources.

Illustrative structure

Illustrative structure: how one loan links lenders, a sponsor, an agent and filingsIllustrative diagram with generic labels: Sponsor S owns Borrower A. A unitranche term loan is lent to Borrower A, administered by Agent Bank X and amended by Amendment No. 1. Lender 1, a BDC, holds the loan directly and reports it in its 10-Q; Lender 2 holds it through a financing SPV.ownslent toadministersamendsholdsholdsownsreported inSponsor SBorrower A(software, 1L)Unitrancheterm loanAgent Bank XAmendment No. 1Lender 1 (BDC)Lender 2financing SPVLender 2 (fund)Lender 1 10-Q
  • Lender / BDC
  • Fund / vehicle
  • Borrower
  • Facility / loan
  • Sponsor
  • Agent bank
  • Amendment
  • Filing
How one loan links two lenders, a sponsor, an agent bank and the filings that report it. Illustrative structure: generic labels, no real entities. Shows the node and edge types a credit graph usually carries.
Liability management exercise (LME) LME
A transaction in which a stressed borrower uses flexibility in its credit agreement to raise new money or cut debt, often favouring some lenders over others. Uptiers, drop-downs and double-dips are common forms. PCT-010 →
J.Crew trapdoor / J.Crew blocker LME
Named after J.Crew's 2016–17 transfer of intellectual property to an unrestricted subsidiary using investment baskets, putting the assets beyond the reach of existing lenders. A J.Crew blocker restricts transferring material IP (or other material assets) to unrestricted subsidiaries. PCT-010 →
Serta uptier / Serta blocker LME
Named after Serta Simmons' 2020 transaction, in which a majority lender group amended the agreement to allow new super-priority debt and exchanged its own loans into it, subordinating non-participating lenders. A Serta blocker requires affected-lender consent to subordinate liens or payment priority. The Fifth Circuit ruled against Serta's use of the 'open market purchase' exception in December 2024. PCT-010 →
Chewy / PetSmart blocker LME
Named after PetSmart's 2018 transfer of a minority stake in Chewy, which arguably released Chewy's guarantee because it was no longer a wholly owned subsidiary. A Chewy blocker stops guarantees from being released just because a subsidiary becomes non-wholly-owned. PCT-010 →
Moving collateral into a non-guarantor or unrestricted subsidiary, which then raises new debt secured by those assets ahead of existing lenders. PCT-010 →
Double-dip LME
A structure where new lenders get two claims on the same credit group, typically a guarantee plus an intercompany loan, improving recovery relative to existing lenders.
Non-pro-rata LME
Any transaction that treats lenders in the same class differently, such as an exchange offered only to a majority group. Pro rata sharing clauses and their exceptions decide whether it is allowed. PCT-010 →
Cooperation agreement (co-op) LME
A contract among lenders to act together and not do separate deals with the borrower, to defend against non-pro-rata LMEs. PCT-003 →
Amend and extend (A&E) Direct lending
An amendment that pushes out maturity, often with a fee, higher spread or PIK. Moody's treats some A&Es among distressed borrowers as default-equivalent. PCT-013 →
PIK (payment in kind) / PIK toggle Direct lending
Interest added to principal instead of paid in cash. A toggle lets the borrower choose. 'Good' PIK is structured at origination; 'bad' PIK is switched on under stress. PCT-011 →
Non-accrual BDCs
A loan on which the lender stops recognising interest income because collection is doubtful. BDCs disclose non-accruals by cost and fair value. PCT-001 →
EBITDA add-backs Direct lending
Adjustments that increase EBITDA for covenant and leverage purposes, such as projected synergies and cost savings, often capped at a percentage of EBITDA. PCT-008 →
Level 3 / Rule 2a-5 BDCs
Level 3 assets are valued with significant unobservable inputs under ASC 820. Rule 2a-5 under the 1940 Act sets fair value governance for registered funds and BDCs, including a valuation designee. PCT-034 →
Asset coverage (BDC) BDCs
Assets divided by senior securities. BDCs must keep it at 200%, or 150% if they have approved the reduced requirement (allowed since 2018), roughly 1:1 and 2:1 debt-to-equity.
OC test / IC test CLOs
Overcollateralization (par of collateral ÷ notes outstanding at and above a class) and interest coverage (interest received ÷ interest due) tests. A failure diverts cash from junior notes and equity to pay down senior notes. PCT-037 →
CCC bucket / CCC excess haircut CLOs
CLOs typically limit CCC-rated assets to about 7.5% of the portfolio. Holdings above the limit are carried at market value (the lowest-priced first) in the OC test, reducing cushions. PCT-037 →
WARF CLOs
Weighted average rating factor: a single number for portfolio credit quality used in CLO collateral quality tests. Higher means riskier. PCT-037 →
Continuation vehicle (CV) Secondaries
A new fund run by the same manager that buys assets from an older fund. Existing LPs choose to sell (cash out at the deal price) or roll into the new vehicle. PCT-039 →
A loan to a fund secured by its portfolio, sized on a loan-to-value against reported NAV.
Subscription line Fund finance
A short-term facility secured by LPs' uncalled commitments, used to bridge capital calls. Side letters can exclude LPs from the borrowing base.
Significant risk transfer (SRT) Bank partnerships
A bank buys credit protection on a reference pool of its loans (via guarantee or credit-linked notes), keeping the loans but reducing regulatory capital. Investors, often credit funds, take a junior or mezzanine tranche of losses. PCT-040 →
Replenishment (SRT / ABF) Bank partnerships
A feature allowing the originator to add new eligible loans to a pool during a set period, so the pool investors end up with may differ from the one they priced. PCT-040 →
Borrowing base ABF
The amount a borrower can draw, calculated from eligible collateral times advance rates, after concentration limits and exclusions.
Roll rate ABF
The share of loans moving from one delinquency bucket to a worse one in a period (e.g. 30 to 60 days). Tracked by vintage to spot deteriorating cohorts.