Table of Contents DCM (Debt Capital Markets) Glossary... 3

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Cecily Dickerson
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1 DCM (Debt Capital Markets) Glossary Sales Training Team November 5, 2010

2 Table of Contents 01 - DCM (Debt Capital Markets) Glossary... 3 Agent Bank... 3 Bracket... 3 Bookrunner... 3 Credit Facility... 3 Creditor... 4 Lead Bank... 4 London Interbank Offered Rate... 4 Loan Syndication... 5 Pro-Rata Tranche... 5 Revolving Credit... 5 Tranches... 5 Underwriting... 6 Unsecured Creditor... 6

3 01 - DCM (Debt Capital Markets) Glossary Agent Bank A bank that acts in some capacity on behalf of another bank. It can mean any of three types of bank: 1) The bank in a loan syndicate that advises other participating banks of advances taken and changes in interest rates for a foreign or domestic borrower 2) A bank that participates in the credit card program of another bank by issuing credit cards and performing other duties (excluding financing card receivables) 3) A foreign bank doing business in the U.S. on behalf of its parent bank, performing such tasks as issuing international letters of credit, but not accepting deposits A syndicate manager will receive a mandate from a borrower to arrange a syndicated loan. After the agreement closes, the duties of the syndicate manager end. At that point, the syndicate manager is usually appointed the agent bank, which coordinates the loan between the borrower and participating banks. Bracket A level of commitment and related title offered to banks and other investors invited into a syndicated loan agreement. Bookrunner The bank(s) appointed to run the books during the execution phase of syndication with responsibility for issuing invitations, disseminating information to interested banks and informing both the borrower and the management group of underwriters of daily progress. High profile role and generally considered the most desirable syndication task. Credit Facility A type of loan made in a business or corporate finance context. Specific types of credit facilities are: revolving credit, term loans, committed facilities, letters of credit and most retail credit accounts. Companies frequently implement a credit facility in conjunction with closing a round of equity financing (raising money by selling shares of its stock). A key consideration for any company is how it will incorporate debt in its capital structure, at the same time it must consider the parameters of its equity financing. The company must look at its capital structure as a whole, determining how much capital it needs immediately and

4 over time, and the combination of equity and debt that it will use to fulfill those requirements. Creditor An entity (person or institution) that extends credit by giving another entity permission to borrow money if it is paid back at a later date. Creditors can be classified as either "personal" or "real". Those people who loan money to friends or family are personal creditors. Real creditors (i.e. a bank or finance company) have legal contracts with the borrower granting the lender the right to claim any of the debtor's real assets (e.g. real estate or car) if he or she fails to pay back the loan. When creditors are notified of bankruptcy proceedings, they have a couple of options with respect to their claim against the debtor: 1) They can share in any distribution from the bankruptcy estate according to the priority of their claim. Most unsecured, non-wage claims come low on the priority list. 2) They can take the debtor to court and challenge a debtor's discharge (the right not to pay back) due to bankruptcy protection. Lead Bank A bank that oversees the arrangement of a loan syndication. The lead bank is paid an additional fee for this service, which involves recruiting the members and negotiating the financing terms. In the eurobond market, the lead bank acts in an agent capacity for an underwriting syndicate. "Lead bank" can also refer to an investment bank that manages the process of underwriting a security. In this sense, the bank can also be referred to as a lead manager or managing underwriter. A third meaning of this term is simply the primary bank of an organization that uses several banks for several different purposes. London Interbank Offered Rate An interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market. The LIBOR is fixed on a daily basis by the British Bankers' Association. The LIBOR is derived from a filtered average of the world's most creditworthy banks' interbank deposit rates for larger loans with maturities between overnight and one full year. The LIBOR is the world's most widely used benchmark for short-term interest rates. It's important because it is the rate at which the world's most preferred borrowers are able

5 to borrow money. It is also the rate upon which rates for less preferred borrowers are based. For example, a multinational corporation with a very good credit rating may be able to borrow money for one year at LIBOR plus four or five points. Countries that rely on the LIBOR for a reference rate include the United States, Canada, Switzerland and the U.K. Loan Syndication The process of involving several different lenders in providing various portions of a loan. Mainly used in extremely large loan situations, syndication allows any one lender to provide a large loan while maintaining a more prudent and manageable credit exposure because the lender isn't the only creditor. Pro-Rata Tranche A portion of a syndicated loan that is made up of a revolving credit facility and an amortizing term loan. The pro-rata tranche is syndicated by banks, as opposed to institutional tranches, which are primarily comprised of non-bank lending institutions. Both tranches may often be found within the same syndicated loan. Pro-rata tranches are common within the leverage loan market, or in loans to companies with existing high debt loads. Within the pro-rata tranche, the revolving credit line will typically have the same ending or maturity date as the term loan. By forming a syndicate, banks involved in the deal can spread the credit risks among several lenders. Pro-rata tranches have historically been much larger than institutional tranches in terms of dollar size. Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customer's current cash flow needs. Often referred to as "revolver". Revolving lines of credit can be taken out by both corporations and individuals. The bank that is in agreement with the customer guarantees a maximum amount that can be loaned to the customer. Along with the commitment fee there are also interest expenses for corporate borrowers and carry forward charges for consumer accounts. Tranches

6 A piece, portion or slice of a deal or structured financing. This portion is one of several related securities that are offered at the same time but have different risks, rewards and/or maturities. "Tranche" is the French word for "slice". Tranche is a term often used to describe a specific class of bonds within an offering wherein each tranche offers varying degrees of risk to the investor. For example, a CMO offering a partitioned MBS portfolio might have mortgages (tranches) that have one-year, two- year, five-year and 20-year maturities. It can also refer to segments that are offered domestically and internationally. Underwriting 1) The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2) The process of issuing insurance policies. The word "underwriter" is said to have come from the practice of having each risk-taker write his or her name under the total amount of risk that he or she was willing to accept at a specified premium. In a way, this is still true today, as new issues are usually brought to market by an underwriting syndicate in which each firm takes the responsibility (and risk) of selling its specific allotment. Unsecured Creditor An individual or institution that lends money without obtaining specified assets as collateral. This poses a higher risk to the creditor because it will have nothing to fall back on should the borrower default on the loan. A debenture holder is an unsecured creditor. It's uncommon for individuals to be able to borrow money without collateral. For example, when you take out a mortgage, a bank will always hold your house as collateral for the loan in case you default. One exception is large corporations, which often issue commercial paper that is unsecured.

APPENDIX A: GLOSSARY

APPENDIX A: GLOSSARY Italicized terms within definitions are defined separately. ABCP see asset-backed commercial paper. ABS see asset-backed security. ABX.HE A series of derivatives indices constructed