The implied sovereign yield of a bond, or the theoretical yield of the non-collateralized portion of a bond. |||Because many Brady bonds have built-in interest features and principal guarantees to attract secondary-market investors, stripping out these enhancements allows investors to discern easily the underlying sovereign risk of the bond. In other words, the stripped yield is the yield on the cash flow from the part of the bond that isn't guaranteed by U.S. zero-coupon bonds.
A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known as a "junior security" or "subordinated loan". |||In the case of default, creditors with subordinated debt wouldn't get paid out until after the senior debtholders were paid in full. Therefore, subordinated debt is more risky than unsubordinated debt.
Debt financing that is ranked behind that held by secured lenders in terms of the order in which the debt is repaid. "Subordinate" financing implies that the debt ranks behind the first secured lender, and means that the secured lenders will be paid back before subordinate debt holders. |||The lender's risk in subordinate financing is higher than that of senior lenders because the claim on assets is lower. As a result, subordinate financing can be made up of a mix of debt and equity financing. This allows the lender involved to look for an equity component, such as warrants or options, to provide additional yield and compensate for the higher risk.
A form of debt obligation issued by hierarchical tiers below the ultimate governing body of a nation, country, or territory. This form of debt comes from bond issues and is issued by states, provinces, cities or towns in order to fund municipal and local projects.Also referred to as a "municipal (muni) debt obligation". |||This form of debt obligation is commonly created by municipalities in order to meet funding requirements. Issuing bodies are responsible for their own debt issues, which can carry significant risk depending on the financial health of the municipality.
A type of loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans. Quite often, subprime borrowers are often turned away from traditional lenders because of their low credit ratings or other factors that suggest that they have a reasonable chance of defaulting on the debt repayment. |||Subprime loans tend to have a higher interest rate than the prime rate offered on traditional loans. The additional percentage points of interest often translate to tens of thousands of dollars worth of additional interest payments over the life of a longer term loan. However, getting a subprime loan could still be a good idea if the loan is meant to pay off a higher interest debt (such as credit card debt) and the borrower has no other means for payment. The specific amount of interest charged on a subprime loan is not set in stone. Different lenders may not value a borrower's risk in the same manner. This means that a subprime loan borrower has an opportunity to save some additional money by shopping around.
A clause in an agreement which states that the current claim on any debts will take priority over any other claims formed in other agreements made in the future. Subordination is the act of yielding priority. |||A subordination clause effectively makes the current claim in the agreement senior to any other agreements that come along after the original agreement. These clauses are most commonly seen in mortgage contracts and bond issue agreements. For example, if a company issues bonds in the market with a subordination clause, it insures that if more bonds are issued in the future the original bondholders will receive payment before the company pays all other debt issued after it. This is added protection for the original bondholders as the likelihood of them getting their investment back is higher with a subordination clause.
A loan offered by a group of lenders (called a syndicate) who work together to provide funds for a single borrower. The borrower could be a corporation, a large project, or a sovereignty (such as a government). The loan may involve fixed amounts, a credit line, or a combination of the two. Interest rates can be fixed for the term of the loan or floating based on a benchmark rate such as the London Interbank Offered Rate (LIBOR).Typically there is a lead bank or underwriter of the loan, known as the "arranger", "agent", or "lead lender". This lender may be putting up a proportionally bigger share of the loan, or perform duties like dispersing cash flows amongst the other syndicate members and administrative tasks. Also known as a "syndicated bank facility". |||The main goal of syndicated lending is to spread the risk of a borrower default across multiple lenders (such as banks) or institutional investors like pensions funds and hedge funds. Because syndicated loans tend to be much larger than standard bank loans, the risk of even one borrower defaulting could cripple a single lender. Syndicated loans are also used in the leveraged buyout community to fund large corporate takeovers with primarily debt funding.Syndicated loans can be made on a "best efforts" basis, which means that if enough investors can't be found, the amount the borrower receives will be lower than originally anticipated. These loans can also be split into dual tranches for banks (who fund standard revolvers or lines of credit) and institutional investors (who fund fixed-rate term loans).
The name given to the swap's equivalent of a yield curve. The swap curve identifies the relationship between swap rates at varying maturities. |||Used in similar manner as a bond yield curve, the swap curve helps to identify different characteristics of the swap rate versus time.
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