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Glossary

Glossary

107 terms

The vocabulary of export finance, project finance and commercial real estate lending, defined the way a credit desk uses it, with citations to the official record.

A

  • Advance payment guarantee

    An advance payment guarantee secures repayment of a contract mobilisation advance, usually as a reducing demand guarantee.

  • Adverse media screening

    Adverse media screening reviews public news and open sources for financial crime, corruption or other serious misconduct linked to a customer or owner.

B

  • Banker's acceptance

    A banker's acceptance is a time draft accepted by a bank, creating an unconditional promise to pay a stated sum at maturity.

  • Basel III

    Basel III is the Basel Committee's post-crisis package of minimum capital, leverage and liquidity standards for internationally active banks.

  • Beneficial ownership

    Beneficial ownership identifies the natural persons who ultimately own or control a legal person or on whose behalf a transaction is conducted.

  • Berne Union

    The Berne Union is the international association for export credit and investment insurers, spanning official ECAs, multilaterals and private underwriters.

  • Bid bond

    A bid bond is tender security, usually a demand guarantee, that compensates the employer if the bidder fails to honour a winning bid.

  • Bookrunner

    A bookrunner is the syndication role that controls primary distribution of a loan and the final composition of the lending syndicate.

  • Borrowing base

    A borrowing base is the collateral-derived ceiling on revolving advances, calculated from eligible assets after advance rates and reserves.

  • Buyer credit

    Buyer credit is bank or official financing to an overseas buyer so the exporter is paid while the buyer repays over time.

  • Buyer credit guarantee

    A buyer credit guarantee is official ECA cover of a bank loan to an overseas buyer so an exporter can be paid while the buyer repays over time.

C

  • Cap rate

    Cap rate is the ratio of a property's stabilised net operating income to its value or sales price, used to convert income into value.

  • Cash sweep

    A cash sweep applies surplus project cash, after operating costs and scheduled debt service, to mandatory prepayment of principal.

  • Cash waterfall

    A cash waterfall is the contractual order in which project revenues are applied to costs, debt service, reserves and distributions.

  • Commercial interest reference rate (CIRR)

    The commercial interest reference rate (CIRR) is the OECD Arrangement minimum fixed interest rate for officially supported export credits by currency.

  • Commercial operation date (COD)

    Commercial operation date is when construction is successfully completed and the project is ready to begin regular commercial operation.

  • Commercial risk

    Commercial risk is the risk of non-payment on an export credit caused by the buyer's insolvency, bankruptcy or protracted default.

  • Common terms agreement

    A common terms agreement sets shared representations, undertakings and defaults across multiple project-finance facilities.

  • Completion guarantee

    A completion guarantee is sponsor support that backs project completion and related debt obligations through the construction period.

  • Comprehensive cover

    Comprehensive cover is ECA insurance or guarantee protection against both commercial and political risks of non-payment on an export credit.

  • Confirmed letter of credit

    A confirmed letter of credit adds a second bank's irrevocable undertaking to honour or negotiate a complying presentation.

  • Construction loan

    A construction loan is credit extended to erect or rehabilitate buildings or other structures, including infrastructure needed for development.

  • Country risk

    Country risk is the risk that a sovereign or host-country environment prevents or delays repayment of external debt or cross-border obligations.

  • Covenant breach

    A covenant breach is a failure to meet a financial or operational undertaking in a loan agreement, often constituting or leading to an event of default.

  • Cross default

    A cross default clause makes a default under other financial indebtedness an event of default under the facility, preserving parity among creditors.

  • Currency inconvertibility

    Currency inconvertibility is the inability to convert local currency into hard currency, or to transfer hard currency abroad, due to government action.

  • Customer due diligence

    Customer due diligence is the anti-money-laundering process to identify and verify customers and beneficial owners and monitor the business relationship.

D

  • Debenture

    A debenture is a corporate instrument that creates security over a company's assets, commonly combining fixed and floating charges in favour of lenders.

  • Debt service coverage ratio (DSCR)

    Debt service coverage ratio (DSCR) measures cash flow available for debt service relative to scheduled principal and interest.

  • Debt service reserve account (DSRA)

    A debt service reserve account holds cash sized to cover a defined period of scheduled principal and interest if operating cash falls short.

  • Debt yield

    Debt yield is the ratio of net operating income to loan amount, expressed as a percent and independent of interest rate and amortisation.

  • Demand guarantee

    A demand guarantee is an independent undertaking to pay on a complying demand, commonly governed by ICC URDG 758.

  • Direct agreement

    A direct agreement is a tripartite contract giving lenders notice, cure and step-in rights over key project contracts.

  • Documentary collection

    A documentary collection is bank handling of financial and commercial documents to obtain payment or acceptance under URC 522.

E

  • EBRD

    EBRD is the European Bank for Reconstruction and Development, a multilateral bank financing transition to market economies in its regions of operation.

  • ECA premium

    An ECA premium is the fee an export credit agency charges for insurance or guarantee cover, floored by OECD minimum premium rates where they apply.

  • EIB (European Investment Bank)

    The European Investment Bank (EIB) is the EU's lending arm and a major multilateral financier of climate, infrastructure and development investment.

  • EPC contract

    An EPC contract is an engineering, procurement and construction agreement under which a contractor delivers a project on a turnkey basis.

  • Equator Principles

    The Equator Principles are a voluntary environmental and social risk framework used by financial institutions when financing large projects.

  • EXIM (Export-Import Bank of the United States)

    EXIM is the official US export credit agency, providing loans, guarantees and insurance to support US exports when private finance is unavailable.

  • Export credit agency (ECA)

    An export credit agency (ECA) is a public body that supports national exports with insurance, guarantees or official financing.

  • Export credit guarantee

    An export credit guarantee is official ECA cover that protects a bank or exporter against non-payment on an export credit.

  • Export credit insurance

    Export credit insurance is official or private cover that indemnifies an exporter or lender against non-payment on an export contract.

  • Expropriation risk

    Expropriation risk is the risk of loss from host-government measures that deprive an investor or lender of ownership, control or essential rights.

F

  • Facility agent

    A facility agent is the administrative bank that channels payments, notices and compliance information between borrower and syndicate.

  • Factoring

    Factoring is a receivables finance contract in which a supplier assigns trade debts to a factor that finances, ledgers, collects or covers default.

  • FATF

    FATF is the Financial Action Task Force, the inter-governmental body that sets and monitors global AML and counter-terrorist financing standards.

  • Financial close

    Financial close is the point when project and financing documents are signed, conditions precedent are met, and funding becomes available.

  • Fixed and floating charge

    A fixed and floating charge is security over specific assets plus a fluctuating asset class, common in UK company and project lending.

  • Force majeure

    Force majeure is an extraordinary impediment beyond a party's reasonable control that prevents or impedes contractual performance under agreed conditions.

  • Forfaiting

    Forfaiting is without-recourse discounting of an exporter's future trade receivables evidenced by transferable payment instruments.

H

  • Hermes cover (Hermesdeckung)

    Hermes cover is the common name for German federal export credit guarantees that protect exporters and banks against commercial and political defaults.

I

  • IFC (International Finance Corporation)

    IFC (International Finance Corporation) is the World Bank Group institution that finances and mobilises private sector investment in emerging markets.

  • Independent engineer

    An independent engineer is a technical adviser that reviews design, construction and performance for project-finance lenders.

  • Intercreditor agreement

    An intercreditor agreement sets ranking, payment waterfalls and enforcement controls among creditors in the same financing.

  • Interest coverage ratio

    Interest coverage ratio measures income available to meet interest costs, used in CRE and project finance credit assessment.

  • Interest make up

    Interest make up is official interest-rate support that lets banks offer fixed CIRR export credits while hedging floating funding costs.

  • ISP98

    ISP98 is the ICC International Standby Practices, Publication No. 590, the rule set written specifically for standby letters of credit.

K

  • Know your business (KYB)

    Know your business (KYB) is customer due diligence applied to legal-person customers, including ownership, control and nature of business.

  • Know your customer (KYC)

    Know your customer (KYC) is the industry label for identifying and verifying customers and beneficial owners under customer due diligence rules.

L

  • Legal entity identifier (LEI)

    A legal entity identifier is a unique 20-character code that identifies a legal entity in financial markets under the ISO 17442 standard.

  • Letter of credit

    A letter of credit is an irrevocable bank undertaking to honour a complying presentation of documents under agreed credit terms.

  • Limited recourse

    Limited recourse allows defined sponsor support, often through construction, while repayment still rests primarily on project cash flows.

  • Loan life cover ratio (LLCR)

    Loan life cover ratio (LLCR) compares the NPV of cash flow available for debt service over the remaining loan life with outstanding debt.

  • Loan to cost (LTC)

    Loan to cost (LTC) is the ratio of credit extended to the total cost of a property including construction costs at origination.

  • Loan to value (LTV)

    Loan to value (LTV) is the ratio of credit extended to the market value of the real estate securing or being improved by that credit.

  • Lockbox account

    A lockbox account is a lender-controlled collection account that receives property rents before cash is swept to reserves and debt service.

M

  • Mandated lead arranger

    A mandated lead arranger is the bank appointed to structure, negotiate and syndicate a loan facility for the borrower.

  • Material adverse change

    A material adverse change clause treats a significant deterioration in the borrower's condition, business or prospects as a default or drawstop.

  • MIGA (Multilateral Investment Guarantee Agency)

    MIGA is the Multilateral Investment Guarantee Agency, the World Bank Group insurer of non-commercial risks for investment into developing members.

  • MIGA cover

    MIGA cover is Multilateral Investment Guarantee Agency political risk insurance and credit enhancement for investment into developing members.

N

  • National content requirements

    National content requirements set the minimum home-country content an ECA expects in an export contract before granting official support.

  • Negative pledge

    A negative pledge stops the borrower granting security over assets to other creditors, or requires equal security for existing lenders.

  • Net operating income (NOI)

    Net operating income is annual property gross income less operating expenses, before debt service, depreciation and income taxes.

  • Non-recourse

    Non-recourse financing gives lenders no direct sponsor guarantee, so repayment rests on project or property cash flows and secured assets.

O

  • OECD Arrangement

    The OECD Arrangement sets disciplines on officially supported export credits among its Participants for repayment terms of two years or more.

  • OECD country risk classification (CRC)

    The OECD country risk classification places countries in categories 0 to 7 to set minimum premiums for officially supported export credits.

  • Offtake agreement

    An offtake agreement is a contract under which a buyer commits to purchase a project's output, often anchoring project-finance revenues.

  • Offtaker

    An offtaker is the buyer that contracts to purchase a project's output, anchoring the revenues used to support project finance debt.

P

  • Pari passu

    Pari passu means ranking equally: lenders share the same priority of payment or security among themselves and relative to other unsubordinated creditors.

  • Paris Club

    The Paris Club is an informal group of official bilateral creditors that coordinates sovereign debt treatments for countries facing payment difficulties.

  • Performance bond

    A performance bond is contract security that supports proper performance, often issued as a bank demand guarantee under URDG 758.

  • Political risk insurance (PRI)

    Political risk insurance covers investors and lenders against defined non-commercial risks such as expropriation and transfer restriction.

  • Project finance (limited recourse)

    Project finance is limited-recourse lending repaid from a project's cash flows and secured on its assets and contracts.

  • Project life cover ratio (PLCR)

    Project life cover ratio (PLCR) compares the NPV of cash flow available for debt service over remaining project life with outstanding debt.

  • PSC register

    The PSC register records people with significant control of a UK company, LLP or eligible Scottish partnership, including ownership and control conditions.

R

  • Restructuring vs rescheduling (Paris Club)

    Restructuring vs rescheduling contrasts broader debt treatment, including reduction, with changing payment terms on existing claims.

  • Retention bond

    A retention bond is a guarantee that replaces cash retention, securing defect liability after taking over of the works.

  • Risk participation

    A risk participation is an unfunded transfer of credit risk on a loan, where the participant reimburses the grantor if the borrower fails to pay.

S

  • Sanctions screening

    Sanctions screening checks customers, counterparties and transactions against official sanctions lists to identify prohibited parties or dealings.

  • Security package and security agent

    A security package is the collateral, assignments and support arrangements that secure lender claims over project or property cash flows and assets.

  • Security trustee

    A security trustee holds and enforces shared security on behalf of syndicated lenders and other secured finance parties.

  • Special purpose vehicle (SPV)

    A special purpose vehicle (SPV) is a ring-fenced project company that holds assets and borrows against project cash flows.

  • Sponsor

    A sponsor is the equity party that owns and supports a project or CRE borrower, often through an SPV, with limited or defined recourse to lenders.

  • Standby letter of credit

    A standby letter of credit is an irrevocable, independent bank undertaking payable against documents if the applicant defaults.

  • Step-in rights

    Step-in rights let lenders or their nominee temporarily perform a project company's obligations under key contracts to cure default.

  • Sub participation

    A sub-participation transfers the economic risk and return of a loan to a participant while the grantor remains lender of record to the borrower.

  • Supplier credit

    Supplier credit is deferred payment terms from an exporter to a foreign buyer, often insured or refinanced with ECA support.

  • Syndication

    Syndication is the process of arranging a loan among multiple lenders so commitment size, risk and funding are shared under one facility.

T

  • Tied vs untied financing

    Tied vs untied financing contrasts official support that requires donor-country procurement with finance freely available for wider procurement.

  • Transfer risk

    Transfer risk is the risk that capital or exchange controls prevent conversion of local currency or remittance of funds to foreign creditors.

U

  • UCP 600

    UCP 600 is the ICC Uniform Customs and Practice for Documentary Credits that govern letter of credit transactions when expressly incorporated.

  • UK Export Finance (UKEF)

    UK Export Finance (UKEF) is the UK's export credit agency, providing insurance, guarantees and loans so viable UK exports are not lost for lack of finance.

  • Ultimate beneficial owner (UBO)

    An ultimate beneficial owner is the natural person who ultimately owns or controls a legal entity, or on whose behalf a transaction is conducted.

  • Ultimate beneficial owner (UBO): definitions and registers

    Definitions, thresholds, and reporting obligations for ultimate beneficial owners, plus the public registers that record them.

  • Untied loan guarantee

    An untied loan guarantee is official ECA cover for a foreign loan that is not conditioned on procurement from the supporting country.

  • URDG 758

    URDG 758 is the ICC Uniform Rules for Demand Guarantees governing independent demand guarantees and counter-guarantees when incorporated.