The BOOK of JARGON ® European Capital Markets and Bank Finance The Latham & Watkins Glossary of European Capital Markets and Bank Finance Slang and Terminology Second Edition 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 operates in Seoul as a Foreign Legal Consultant Office. The Law Office of Salman M. Al-Sudairi is Latham & Watkins’ associated office in the Kingdom of Saudi Arabia. © Copyright 2017 Latham & Watkins. All Rights Reserved. Some years ago, a few clever members of our corporate and finance departments in the US created the first Book of Jargon, a glossary of corporate and bank finance slang and terminology. Intended to offer a sort of crash course for recent law and business school graduates navigating Wall Street, the book also served as a desktop reference for not-so-recent graduates. Following fast on the heels of the US book, The European Book of Jargon helped those of us on this side of the pond in the same ways. This Second Edition decodes the new slang, the timeless terminology and the downright confusing phrases used in European capital markets, corporate and bank finance deals and their restructurings. We hope the quick and occasionally clever explanations contribute to your success. The Book of Jargon®: European Capital Markets and Bank Finance is one of a series of practice area-specific glossaries published by Latham & Watkins. The definitions contained inThe Book of Jargon® 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 European Book of Jargon 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. The information contained herein should not be construed as legal advice. If you have suggestions for additional terms or expanded or clarified definitions for the current terms, please send an email to [email protected]. Additional Books of Jargon®, including US Corporate and Bank Finance Global Mergers & Acquisitions Global Restructuring Emerging Companies Healthcare & Life Sciences Hedge Funds MLPs (Master Limited Partnerships) Oil & Gas Patent Trial & Appeal Board (PTAB) Project Finance are available at lw.com or can be downloaded on iTunes or Google Play. ’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. 10b-5 Opinion / Letter: another name for the Negative Assurance Letter. 10b-5 Rep / Rule 10b-5 Representation: this term is generally used by US practitioners as shorthand for a Representation and Warranty by an Issuer, Target or Borrower that the due diligence information provided is complete and correct in all material respects and does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein not misleading. This is “magic” language based on Rule 10b-5. 135 Day Rule: relevant to the Financial Statements of the Issuer in Capital Market deals. 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 will not give such Negative Assurance post 135 days from the end of the most recent reviewed or audited period (even for Reg S Only deals). 135(c) Release: press release announcing the commencement of a private offering by a company subject to the reporting requirements of the US Exchange Act (and certain non-reporting Foreign Private Issuers) in reliance on the Safe Harbour provided by Rule 135(c). Rule 135(c) provides that the Issuer will not be deemed to make an offer of Securities under Section 5(c) if it issues a notice of a proposed or completed unregistered offering in the United States that complies with this rule. See 135(e) Release. 135(e) Release: press release announcing the commencement of a private offering by a company subject to the reporting requirements of the US Exchange Act (and certain non-reporting Foreign Private Issuers) in reliance on the Safe Harbour provided by Rule 135(e). Similar to Rule 135(c), Rule 135(e) provides the Issuer will not be deemed to make an offer of Securities under Section 5(e) if the Issuer issues a notice of a proposed or completed unregistered offering, but the notice may contain other information, such as the names of the Initial Purchasers, Managers or Underwriters. The 135(e) Release may not be circulated in the United States. 144A for Life Offering: a Rule 144A Offering 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. Securities offerings in Europe do not typically include any Registration Rights. 2 2.7: used in the context of P2Ps and shorthand for the announcement required by Rule 2.7 of the Takeover Code, which is an announcement of a firm intention to make a takeover offer. It is very difficult to avoid making a bid once the 2.7 has been made. Also referred to as the Press Announcement. 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 will face criminal sanctions and personal liability if they fail to do so. Often, companies can find ways to address the state of Insolvency in a restructuring and thus avoid the need to file. Not to be confused with Day 21. 3(a)(9): an offer to exchange new debt or Equity Securities for an Issuer’s outstanding debt or Equity Securities, which offer is exempt from registration requirements pursuant to Section 3(a)(9) of the US Securities Act. 3(a)(9) provides an exemption for “any security exchanged by the Issuer with its existing security holders exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange” and requires that: (i) the Issuer of both the exchanged Securities and the surrendered Securities be identical, (ii) the transaction be a bona fide exchange where the Security holder does not part with anything of value other than the outstanding Securities, (iii) the Securities acquired in the exchange be offered exclusively to the Issuer’s existing Security holders and (iv) the Issuer does not pay any remuneration for the solicitation of the exchange. 5 bis Communication: a Spanish pre-Insolvency tool whereby the debtor gains an additional three-month period to achieve an agreement with its creditors and one further month to file for Insolvency. In addition, creditors’ applications to file for Insolvency during that period will not be accepted and, generally speaking, enforcement actions will be stayed. “A” Loan: another name for a Facility A Loan. AAIP: Agreement Among Initial Purchasers. AAOIFI: Accounting and Auditing Organisation for Islamic Financial Institutions. AAOIFI performs a review of developments in the Islamic finance sector and issues guidance papers. AAU: the Accounting and Auditing Organisation for Islamic Financial Institutions, an international and autonomous not-for-profit Organisation based in Bahrain that prepares accounting, auditing, governance, ethics and Shari’ah standards for Islamic financial institutions. Also, in Capital Markets it is an acronym for Agreement Among Underwriters ABL: Asset-Based Loan. ABO: Accelerated Bookbuild Offering. 3 ABS: Asset-Backed Security. Absolute Priority Rule: a term primarily used in US Bankruptcy law. This rule 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 Bookbuild Offering: an offering on the Equity Capital Markets that involves the offering of shares in a short span of time, usually in one or two days, with minimal or no marketing. Acceleration: the end of the line in Bond and loan world. Following an Event of Default, the Bondholders (in accordance with the Terms and Conditions or the Indenture) or Lenders (in accordance with the terms of a Facility Agreement) have the right to, among other things, “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 the practice in the US and Canada (and in European Indentures or Terms and Conditions) is for Insolvency Event of Default to lead automatically to Acceleration, although this is uncommon in European bank financings, which typically require a direction to the agent by Lenders holding two- thirds or more of the outstanding debt. Note that Acceleration can lead to an obligation on the officers of the Issuer/Borrower to file for Insolvency, thereby precluding the ability to agree to a consensual out-of-court restructuring. See also Place on Demand. Accordion Feature: an Incremental Facility that allows the Borrower to increase the maximum commitment amount under a Revolver or to incur additional Term Loan debt under the Facility Agreement.