Stock Glossary

/Stock Glossary
Stock Glossary 2014-03-06T04:54:56+00:00

Audit Guide Manual created by the American Institute of Certified Public Accountants setting forth guidelines for auditing.


Balanced price -the price of a stock that matches the demand of both buyers and sellers.


Business development company (BDC) A company that is created to help grow small companies in the initial stages of their development. BDCs are very similar to venture capital funds. Many BDCs are a type of closed end funds. BDCs are investment companies regulated under the Securities Act of 1940.


“Buy side” Shorthand for the “buy side of Wall Street.” Firms, such as mutual funds, pension funds, and hedge funds that invest customer capital.


Carrying value -the value of an asset or investment as reflected on the balance sheet.


Charge-off  – when a loan is taken off the books and acknowledged to be a loss. It does not relieve the debtor of his obligation and the lender can continue to try to collect. Any subsequent collection is called a recovery.


Clearing broker – member of an exchange who is the liaison between an investor and a clearing corporation. A clearing broker helps to ensure that the trade is settled appropriately.


Closed-end fund An investment fund that has a limited number of shares. To invest in a closed-end fund, one needs to buy an interest from an existing holder

at the prevailing market price, which may be higher or lower than net asset value. They are one of three types of investment companies recognized by the Securities and Exchange Commission. The others are mutual funds and unit investment trusts.


Controlled company A company in which a majority of the voting shares are held by another company.



Debtor-in-possession (DIP) facility A loan to a debtor-in-possession in bankruptcy

that is normally a first lien superpriority loan.


Debt-service ratio Ratio of net operating income to required debt payments.


Defaulted loan A loan on which the borrower has violated the terms of the loan agreement, such as failing to make timely payments.


Delinquency rate Percentage of loans that have failed to make timely payments.


Enterprise value The total value of a company. It is market capitalization of its equity plus debt, minority interest and preferred shares, minus total cash and cash equivalents.


Equity “kicker” An offer of an ownership position in a company in a deal involving a loan.


Equity warrants Security that entitles the holder to buy stock of a company for a specified exercise price. In many mezzanine investments, the exercise price is a nominal amount.


Exercise date The day on which an investor can exercise an option or a right.


“Fair value” accounting Requires assets to be carried at their fair value the amount at which that asset could be bought or sold in a current transaction between willing parties, other than in a liquidation.


Financial covenants Financial restrictions under which a borrower agrees to operate as part of a loan agreement.


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 (some- times 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 purpose.


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



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 some- times 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.


Non-cash (PIK) income Income recognized on a loan, but paid in additional securities, rather than cash.


Non-accrual 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 addi- tional 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


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.





Glossary 361 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 con- verting the pools into securities. This often includes carving the securities into dif- ferent 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 stock or several stocks. Specialists make a market in their stocks by displaying their best bid and asked prices and must maintain a fair and orderly market in those stocks.

Stock dividends Distributions to shareholders in additional stock, rather than cash.



Stock split Where a company’s stock is divided into multiple shares. For example,

a 2-for-1 split of a $100 stock results in two shares worth $50 each.


Subordinated debt investment Investment made in a debt instrument that is junior to senior debt.


Tax distribution Taxable earnings that are distributed to shareholders.


Taxable income The part of a company’s earnings that are subject to federal and

state taxation.


Transparency Refers to a company conducting its business out in the open with good disclosure so investors have a clear idea of its operations and performance.


Underwriting loans The act of determining whether and on what terms to issue a loan to a prospective borrower, often based on analysis of the prospects creditworthiness.


Unrealized depreciation The excess of the basis of an investment over its fair mar- ket value.


Write-down  Decrease in the stated value of an asset.


Write-up Increase in the stated value of an asset. Year of origination The date when a loan was issued.


Yield to maturity A loan’s total return, stated as an interest rate, if it is held until it matures