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The BOOK of JARGON ® European Markets The Latham & Watkins Glossary of European Capital Markets and Bank Finance Slang and Terminology First Edition 1 Latham & Watkins operates worldwide as a limited liability partnership organized under the laws of the State of Delaware (USA) with affiliated limited liability partnerships conducting the practice in the United Kingdom, France, Italy and Singapore and as affiliated partnerships conducting the practice in Hong Kong and Japan. Latham & Watkins practices in Saudi Arabia in association with the Law Office of Mohammed Al-Sheikh. Under New York’s Code of Professional Responsibility, portions of this communication contain attorney advertising. Prior results do not guarantee a similar outcome. Results depend upon a variety of factors unique to each representation. Please direct all inquiries regarding our conduct under New York’s Disciplinary Rules to Latham & Watkins LLP, 885 Third Avenue, New York, NY 10022-4834, Phone: +1.212.906.1200. © Copyright 2010 Latham & Watkins. All Rights Reserved. 2 A couple of years ago, some clever members of our corporate and finance departments in the US sat down and created The Book of Jargon, subtitled “The Latham & Watkins Glossary of Corporate and Bank Finance Slang and Terminology”. As stated in its introduction, it was intended to be a sort of “Berlitz Course” for recent law school and business school graduates seeking initiation into the world of Wall Street, and a desktop reference for not-so-recent graduates. And what a success it has been, even now available as an app for the technology savvy amongst us. But to adapt a well known saying, the US finance community and the European finance community can often be two worlds divided by a common language (and in certain cases, even the language is different). The aim of this publication is therefore to help those of us on this side of the pond in the same way that our original US publication has become so invaluable to many, although we believe it will also be of interest to those involved in finance around the rest of the world. We aim to assist you with the slang, terminology and down-right confusing phrases used in European capital markets (including high yield), corporate and bank finance deals (and their restructuring), essentially just enough knowledge to make you dangerous and hopefully make you look smart. Welcome to our world. The definitions contained here are designed to provide an introduction to the applicable terms. The terms included herein raise complex legal issues on which specific legal advice will be required. The terms are also subject to change as applicable laws and customary practice evolve. As a general matter, The Book of Jargon European Markets is (as the name suggests) drafted from a European practice perspective but we confess to having liberally plagiarized where applicable from the original Book of Jargon. Readers might also like to check out another publication in this series The Book of Project Finance Jargon, subtitled “The Latham & Watkins Glossary of Project Development, Acquisition and Finance Slang and Terminology”. The information contained herein should not be construed as legal advice. If you have any suggestions for additional terms or expanded or clarified definitions for the current terms, please send an e-mail to [email protected]. 1 2.5: used in the context of P2Ps and shorthand for the announcement required by Rule 2.5 of the Takeover Code being an announcement of a firm intention to make a takeover offer. It is very difficult to avoid making a bid once the 2.5 has been made. Also referred to as the Press Announcement but never referred to as the “two and a half”. 4(2): shorthand for Section 4(2). 10b-5 Opinion: see Negative Assurance Letter. 10b-5 Rep: another name for a Rule 10b-5 Representation. 135 Day Rule: relevant to Bond world and the Financial Statements of the Issuer. SAS 72 permits an accounting firm to give negative assurance that it is unaware of certain specified changes in Financial Statement amounts up to a date that is less than 135 days from the end of the most recent period for which the accounting firm has performed an audit or review. Accounting firms routinely refuse to give such negative assurance post 135 days from the end of the most recent reviewed or audited period (even for Reg S Only deals). 144A for Life Offering: a Rule 144A Financing that does not provide Registration Rights for the buyers of the Securities. Accordingly, the Issuer in a 144A for Life Offering is not required to become a Reporting Company under the US Exchange Act. In Securities offerings in Europe that include a US tranche, the US tranche is typically a 144A for Life Offering. 144A Offering: another name for a Rule 144A Financing. 21 Day Rule: a German Insolvency rule that also translates into English as “everybody panic”. Management of a German company must file for Insolvency no later than three weeks after the company becomes insolvent and face criminal sanctions and personal liability if they fail to do so. In a restructuring there are often ways found to address the state of Insolvency and thus avoid the need to file. Not to be confused with Day 21. ’33 Act: another name for the US Securities Act. ’34 Act: another name for the US Exchange Act. ’40 Act: another name for the US Investment Company Act. 404 Compliant: an Issuer that is compliant with SOX Section 404. “A” Loan: another name for a Facility A Loan. AAOIFI: acronym for Accounting and Auditing Organisation for Islamic Financial Institutions. AAOIFI performs a review of developments in the Islamic finance sector and issues guidance papers. AAU: acronym for Agreement among Underwriters. 2 A/B Exchange Offer: this is the process that allows you to flip (or exchange) the private Notes that were issued in a Rule 144A Offering with Registration Rights into SEC-registered Notes. The A/B Exchange Offer is an SEC registered Exchange Offer that takes place within a certain period of time after the Closing of a Rule 144A Offering. In order to comply with its obligations under the Registration Rights Agreement, the Issuer makes an offer to holders of the Rule 144A Notes to exchange those Notes for registered, freely tradable Notes (that otherwise have the same terms). A/B Exchange Offers can be used for Investment Grade and High Yield Notes, but not Convertible Notes. Exchange Offers are also known as Exxon Capital Exchange Offers. Recent changes to Rule 144 have had significant effects on the likelihood of A/B Exchange Offers. See Latham & Watkins Client Alert No. 669, The Future of Registration Rights in Private Offerings of Debt Securities (22 January 2008), available at www.lw.com. ABL: acronym for Asset-Based Loan. ABS: acronym for Asset-Backed Security. Absolute Priority Rule: a term primarily used in US Bankruptcy law, being the rule which states that when a company is liquidated or reorganised, senior classes of claims and equity interests must receive full distributions on account of their claims or equity interests before junior classes may receive any distributions, unless the senior classes consent otherwise. Accelerated Filer: a category of Issuer created by SEC rules. An Issuer’s status as an Accelerated Filer, as opposed to a Large Accelerated Filer, a Non-Accelerated Filer or a Smaller Reporting Company, determines when its Financial Statements go Stale and when it has to comply with SOX Section 404. An Issuer qualifies as an Accelerated Filer if (i) its Public Float is between US$75.0 and US$700.0 million as of the last business day of the second fiscal quarter of the Issuer’s preceding fiscal year and (ii) it has been subject to the requirements of Section 13(a) or 15(d) of the US Exchange Act for at least 12 months, including the requirement to file an annual report. Once an Issuer is in Accelerated Filer land, its Public Float has to fall below US$50.0 million to get out. See Latham & Watkins Desktop Staleness Calendar, available at www.lw.com. Acceleration: the end of the line in Bond and loan world. The definitions of Default and Event of Default describe how we get there. Following an Event of Default, the Bondholders (in accordance with the Terms and Conditions or the Indenture) or Lenders (under a Credit Agreement) have the right to “accelerate” the Due Date of their debts; in other words, they have the right to declare their Bonds or loans immediately due and payable. Note that practice in the US (and in European Indentures) is for Insolvency Events of Default to automatically lead to Acceleration, however this is uncommon in Europe bank financings. Note that 3 Acceleration can lead to an obligation on the officers of the Issuer/ Borrower to file for Insolvency, thereby precluding the ability to agree a consensual out-of-court restructuring. See also Place on Demand. Accordion Feature: so called because it resembles the expanding musical instrument whose name it shares, this is a feature in a Credit Agreement that allows the Borrower to increase the maximum commitment amount under a Revolver or to incur additional Term Loan debt under circumstances specified in the Credit Agreement. The Accordion, however, is not pre-committed financing. It is really just an advance agreement to permit the additional debt within agreed parameters and to provide for it to share in the Collateral in the future if the Borrower can find Lenders willing to provide the debt. Also known as an Incremental Facility. Accordo di Ristrutturazione: a pre-Insolvency procedure for company restructuring in Italy.
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