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Bond market: Glossary


Amortized loan - A loan with scheduled periodic payments that consist of both principal and interest.Balloon loan - A type of loan that does not fully amortize over its term. Since it is not fully amortized, a balloon payment (loan payment that is much larger than the other payments) is required at the end of the term to repay the remaining principal balance of the loan.Bridge loan - A bridge loan is interim financing for an individual or business until permanent or the next stage of financing can be obtained. Money from the new financing is generally used to "take out" (i.e. to pay back) the bridge loan, as well as other capitalization needs. Bridge loans are typically more expensive than conventional financing because of a higher interest rate, points and other costs that are amortized over a shorter period, and various fees and other "sweeteners" (such as equity participation by the lender in some loans). To compensate for the additional risk the lender may require cross-collateralization and a lower loan-to-value ratio. On the other hand they are typically arranged quickly with relatively little documentation.Bullet loan - Type of balloon loan in which only interest is paid for the duration of loan; the principal is paid at the end of the loan as one lump sum payment.Club loan - A loan which is syndicated by the borrower, acting as arranger and agent of its own deal and using its relationship banks. There may be different structures, but documentation will be identical with the different banks.Commercial loans to the constituent entities and municipal formations of the Russian Federation - are loans granted by commercial banks on a maturity, repayment, interest payment and targeted use basis.

Among the constituent entities of the Russian Federation, the recipients of commercial loans are the republics, territories, regions, cities of federal status, as well as autonomous regions and districts, such as the Khabarovsk Territory, 01, 08.2020. Among municipal formations, the borrowers are municipal and rural settlements, urban districts and municipal areas, for example, Balakovsky District, 02, 08.2020.

Commercial loans are raised through the Unified Information System for procurement in accordance with Federal Law No. 44-FZ dated 5/4/2013 "On Contract System for State and Municipal Procurement of Goods, Works, and Services".

Commercial loans are granted to the constituent entities and municipal formations of the Russian Federation in three forms:
1. non-revolving credit facility (Dubna, 01, 07.2020)
2. revolving credit facility (Voronezh, 01, 07.2020)
3. term facility (Alnashsky District, 01, 07.2020)

The main procurement methods used to raise commercial loans are electronic auctions (Kostroma, 10, 07.2020) and request for proposals (Smolensk, 04, 07.2016).

The majority of public procurement of loans is conducted on the electronic platforms of Sberbank-AST and RTS-tender, as well as the Unified Electronic Trading Facility.
Cross-border loans - Cross-border loans are any loan agreements entered into by the lender and the borrower (or the borrower and several lenders) registered in different jurisdictions.Multi-currency loan - Financing provided with the option of using different currencies.Pre-export financing - Funds advanced by a lending institution against confirmed orders from qualified foreign buyers to enable the exporter to make and supply ordered goods. Usually, the exporter arranges a commitment from the buyer to make the payment directly to the lender.Revolving loan - A Banking arrangement which allows for the loan amount to be withdrawn, repaid, and redrawn again in any manner and any number of times, until the arrangement expires.Secured loan - A loan agreement under which a borrower pledges a specific asset or property which the lender can seize in case of default.Syndicated loan - Syndicated loan is a form of loan in which two or more lenders jointly provide a loan to one or more borrowers under the same uniform terms and sign the same loan agreement. Usually one of the banks is appointed by the agent bank to manage the loan process on behalf of the other participants in the syndication process. During the syndicated loan process, the organizers raise investment funds for the borrower due to the need for capital. The borrower pays the organizers a commission for the organization, which is higher, the more complicated the procedure for granting a loan and the risk is higher. A syndicated loan should be distinguished from a joint loan, in which each participating bank contacts the borrowers, collects information on the borrower and receives loan payments separately without the participation of the agent bank.

Objectives of the syndicated loan:
The organization of this loan can serve several purposes. It can be the provision of support for general corporate goals, including covering capital costs, increasing the volume of working capital, promoting the expansion in the market. In addition, it could include refinancing the existing capital structure or supporting a full recapitalization, including in some cases the payment of dividends to shareholders. However, the main purpose of these loans is increasingly becoming the financing of mergers and acquisitions, when the buyer uses the borrowed funds to acquire the corresponding share in the acquisition process.

Types of syndicated loans:
• Guaranteed loan - in this case, the organizers guarantee the attraction of a loan in full at their own expense, and then syndicate this loan to other banks and institutional investors. If it is not possible to secure a subscription for a loan for the entire planned amount, the organizers cover the difference from their own funds and may in the future try to sell the loan to investors again.
• Best Efforts Syndicate - in this case, the organizing group will provide an amount less than the planned loan amount, intending to cover the difference by raising funds from the market. If the subscription to a loan does not reach the required level, the transaction may not be closed in principle, or it may take additional time to cover the transaction.
• Club Loan - a smaller loan that is offered non-publicly to a group of borrowers with whom they have established business relationships. The organizer in this case plays the role of the first among equals, and each creditor receives their share of the commission, often almost equal to the share of the organizer.

Features of the syndicated loan:
• Longer term and larger amount. In this regard, syndicated loans are often used to finance large projects, in particular in the oil and gas, telecommunications and transport industries for project financing and leasing of large equipment.
•It takes less time and efforts to implement. Usually the work of collecting the syndicate of participants is the responsibility of the organizer of the transaction, after the organizer and the borrower agree on the preliminary terms of the loan. The borrower does not need to meet with all potential participants in the syndicated loan. The agent bank is responsible for the respective loan payments and other loan management activities.
• Improving the image of the borrower. The successful issuance of a syndicated loan occurs after the participants are convinced of the proper financial condition of the borrower, which allows for the improvement of its reputation in the future.
Syndicated loan tranche - is a part of funds provided in the form of a syndicated loan. Different tranches of one loan can be denominated in different currencies, have different interest rates, tenors and other material parameters defined by organizers.Term loan - Short-term (usually for one to five years) loan payable in a fixed number of equal installments (usually semiannually) over the term of the loan.
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