A clause included in certain debt securities and swap agreements stating that the immediate collection of payment and termination of contract will take place should any number of clauses being violated by the borrower including default or a downgrade of debt. Also referred to as "acceleration clause." Taobiz explains Acceleration Covenant This covenant helps to protect parties that extend financing to businesses in need of capital. Under an acceleration covenant, the borrowing party must maintain a specified credit rating in order to prevent termination of the contract and immediate repayment.
A specific method by which corporations can repurchase outstanding shares of their stock. The accelerated share repurchase (ASR) is usually accomplished by the corporation purchasing shares of its stock from an investment bank. The investment bank borrows the shares from clients or share lenders and sells them to the company. The shares are returned to the client through purchases in the open market, often purchased over a period that can range from one day to several months. Taobiz explains Accelerated Share Repurchase - ASR Accelerated share repurchases allow corporations to transfer the risk of the stock buyback to the investment bank in return for a premium. The corporation is therefore able to immediately transfer a predetermined amount of money to the investment bank in return for its shares of stock. ASRs are often used to buy shares back at a faster pace and reduce the amount of shares outstanding right away.
A type of index fund where a fund manager bases the fund's initial investment proportions according to the benchmark index in which the manager is attempting to track, and then proceeds to add what he/she believes to be higher performing stocks that are unrelated to underlying index. The fund manager will then actively manage the composition of these non-benchmark stocks in order to earn yields that exceed the benchmark index. Taobiz explains Active Index Fund A fund manager that attempts to make an active index fund version of the Standard & Poor's 500 Index (S&P 500) would buy and periodically rebalance all the stocks to match the proportions found in the actual S&P 500. In addition, the manager will add stocks they believe will have a strong performance. For example, if the manager believes that the semiconductors will be hot during the subsequent quarter; more semiconductor stocks would be added to the portfolio. While it is possible that some fund managers may be able to significantly beat the underlying benchmark index by using strategies, such as market timing, this is far from guaranteed. Furthermore, the active management aspect of the fund will likely incur higher expenses, which could eat away at some and perhaps all of the extra returns earned by active management.
A loan given to a company to purchase a specific asset or to be used for purposes that are laid out before the loan is granted. The acquisition loan is typically only able to be used for a short window of time, and only for specific purposes. once repaid, funds available through an acquisition loan cannot be reborrowed as with a revolving line of credit at a bank. Taobiz explains Acquisition Loan Acquisition loans are sought when a company wants to complete an acquisition for an asset but doesn't have enough liquid capital to do so. The company may be able to get more favorable terms on an acquisition loan because the assets being purchased have a tangible value, as opposed to capital being used to fund daily operations or release a new product line.
A tax imposed by the federal government upon companies with retained earnings deemed to be unreasonable and in excess of what is considered ordinary. Taobiz explains Accumulated Earnings Tax The federal government produced this tax to deter investors from negatively influencing a company's decision to pay dividends. Essentially, this tax persuades companies to issue dividends, rather than retaining the earnings. The premise behind this tax is that companies that retain earnings typically experience higher stock price appreciation. Although this is beneficial to stockholders, as capital gains taxes are lower than dividend taxes, it is detrimental to the government because tax revenues decrease. By adding an extra tax upon a firm's retained earnings, the taxman will either collect more taxes from the company or persuade them to issue dividends, thereby allowing the government to collect from the stockholders.
An exchange-traded fund that has a manager or team making decisions on the underlying portfolio allocation or otherwise not following a passive investment strategy. An actively managed ETF will have a benchmark index, but managers may change sector allocations, market-time trades or deviate from the index as they see fit. This produces investment returns that will not perfectly mirror the underlying index. Watch: 4 Reasons To Invest In ETFs Taobiz explains Actively Managed ETF There’s no hard-and-fast rule as to whether an actively managed fund will under- or outperform a passive-ETF rival. Passive ETFs can at least be counted on to follow their indexes faithfully, which allows investors to know up front the holdings and risk profile of the fund. This helps to keep a diversified portfolio in line with expectations. Actively managed funds, however, have the freedom to trade outside of their benchmark indexes, which makes it more difficult for investors to anticipate the future makeup of the portfolio.
A promise or agreement to take some future action. For example, a promise by a buyer to purchase goods at a price set beforehand is an advance commitment. Taobiz explains Advance Commitment In financial markets, parties may make an advance commitment to sell an asset before they own it; the seller often buys a futures contract to offset the risk of a price increase at the time of purchase. In banking, a financial institution will make an advance commitment to a borrower to lend funds on a specified date on agreed-upon terms. Note that in mortgage banking an advance commitment is called a "standby commitment."
A term used to describe the adjustment made to a convertible securities' conversion factor when the exchangeable stock underlying the convertible undergoes a split. Taobiz explains Adjustment in Conversion Terms In some convertibles, an adjustment in conversion terms is a scheduled event. Otherwise, these adjustments are made in order to ensure that the holder of the convertible remains unaffected by any related changes. For example, if a convertible security CBC has an exchange privilege of 1 common for $50, and the common share of CBC splits 2 for 1, then the exchange ratio will be adjusted to 1 common for $25.
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