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Fire sale

When a company sells its assets under financial duress.

Front-loaded income

Revenue that is recognized prior to receiving the cash.

Gain-on-sale accounting

Method of recognizing most of the income from a loan at the time of its origination.

Held its debt investment at cost

Valuing a loan at its original price.

High coupon

When a bond pays a high interest rate.

High-yield bondholder

Investor who has bought below-investment-grade (sometimes called “junk” or “high-yield”) bonds, which pay high interest, but are riskier than investment-grade debt.

“Hold-to-maturity” accounting

Accounting method to value assets based on what they will be worth at maturity. This contrasts with “fair-value” accounting, which values assets based on what they are worth today.

Impaired loans

Loans that will not recover full value.

Impairment test

A calculation designed to measure whether an investment will not recover its full value.

Investment company

Companies, such as mutual funds and business development companies, whose main business is to invest and hold loans or securities of other companies for investment purposes.

Investment-grade bonds

A bond that is considered safe, often having a rating of BBB– or above as determined by the bond rating companies.

Junior debt

Has a lower repayment priority than other debt if the borrower defaults.

Loan maturity date

Date on which all outstanding amounts on a loan must be repaid.

Longs

Investors who own a security, hoping that it rises in value.

Loss rate

The amount of losses on a portfolio as a percentage of the portfolio.

Mark

Another word for accounting value.

Mark-to-market

Recording the price of a security to reflect its market value.

Mezzanine lender

Investor who makes mezzanine loans.

Mezzanine loan

Usually junior debt unsecured by assets. Mezzanine refers to its middle spot, beneath senior debt, but above equity. Maturities usually exceed five years, with the principal payable at the end of the term. These loans sometimes contain a warrant (equity kicker), which lets the borrower buy shares of the company.

Narrow bid-ask spread

When the difference is small between the highest price that a buyer is willing to pay for a security and the lowest price for which a seller is willing to sell it.

Net asset value (NAV)

The value of an investment company’s assets less its liabilities. It is often measured on a per-share basis—the NAV divided by the shares outstanding.

Noncash (PIK) income

Income recognized on a loan, but paid in additional securities, rather than cash.

Nonaccrual loan

A loan on which the lender stops recognizing income, usually because of the borrower’s financial problems.

Non–arm’s length

A transaction between two related entities.

Operating income (recurring net investment income)

In the context of an investment company, this refers to profits earned from interest, dividends and fees after expenses. Operating income excludes gains or losses from the change in value of the investments.

Opinion letter

Auditor’s statement giving its opinion of the financial health of a company.

Origination fees

Money paid to a lender or broker for obtaining a loan.

Oversubscription rights

The opportunity of rights holders to subscribe for additional shares in a rights offering for any shares that other rights holders did not exercise.

Pairs trading

A strategy in which a long investment is matched with a short investment in a comparable industry.

Par

Face value of an investment.

Pari passu

Two or more investments, such as loans or bonds, that have the same seniority and thus equal rights of payment.

Payment-in-kind income

See Noncash (PIK) income.

Portfolio-Lending Accounting

Method of recognizing income from loans ratably over time.

Preferred Lending Provider (PLP)

A designation given to lenders who demonstrate a thorough knowledge of the Small Business Administration’s requirements that allows them to make and service loans in several SBA lending programs, including the 7(a), without prior loan approval by the agency.

Pretexting

Obtaining the phone records of another person or persons by impersonating them to their phone companies.

Private illiquid securities

Securities that are not registered with the SEC and for which there is no broad market and are thus thinly traded.

Recapitalize

To change the capital structure of a company. A strategy often followed by companies in financial distress, which may include the injection of additional funds.

Record date

The date an investor must own a stock in order to be eligible for distributions. Commonly used to determine who is eligible for stock dividends.

Reinsurance

Insurance for insurance companies, purchased as a way to reduce risk by spreading it to other insurers.

Residual assets

The assets of a company or special purpose entity that remain after the claims of senior debt holders are met.

Residual interests

The capitalized assets created through gain-on-sale accounting that reflect the up-front profits booked at origination.

Rights offerings

A means of raising capital by giving additional shareholders the right to buy additional stock at a set (discounted) price within a fixed period.

“Road show”

A series of meetings with existing or potential investors in an effort to drum up interest in a security.

Rollup

A company formed by purchasing a series of small companies in the same line of business.

SBA loans (guaranteed and unguaranteed)

Loans offered with the partial backing of the Small Business Administration (the federal government). The loan can be broken into two pieces. The guaranteed piece has the full backing of the SBA. The unguaranteed piece has no such protection.

Secondary market loan sale premiums

The profit made by an originator selling loans to an investor.

Securitization

The process of putting loans into groups (known as pools) and converting the pools into securities. This often includes carving the securities into different pieces (known as tranches) to be sold to investors of varying risk appetites.

Securitization facility

A short-term lending arrangement to finance loans while they are being assembled into pools pending securitization.

Sell short (shorting)

The opposite of owning, or being long; an investment that profits from a decline in a security value.

“Sell side”

Shorthand for the “sell side of Wall Street.” Firms, such as investment banks, that create and sell investments to investors or the “buy side.”

Senior debt

A bond that takes priority over other debt securities in case of default.

Shareholder distributions

A company’s distributions to its shareholders, usually in cash or stock.

Short squeeze

When the price of a stock rises quickly and investors who sold short cover their position by buying the stock to prevent further losses. This covering causes an additional rise in the price creating additional losses for any remaining short sellers.

Specialist

A member of a stock exchange who is responsible for the trading of a