Τι σημαίνει LBO, CDO, ABS, Commercial Paper, Credit Crunch ;

LBO - Leveraged buyout

A leveraged buyout (or LBO, or highly-leveraged transaction (HLT), or "bootstrap" transaction) occurs when a financial sponsor gains control of a majority of a target company's equity through the use of borrowed money or debt.
A leveraged buyout is a strategy involving the acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the company being acquired, in addition to the assets of the acquiring company, are used as collateral for the loans. The purpose of leveraged buyouts is to allow companies to make large acquisitions without having to commit a lot of capital. In an LBO, there is most often a ratio of 70% debt to 30% equity, although debt can reach as high as 90% to 95% of the target company's total capitalization. The equity component of the purchase price is typically provided by a pool of private equity capital.
Typically, the loan capital is borrowed through a combination of prepayable bank facilities and/or public or privately placed bonds, which may be classified as high-yield debt, also called junk bonds. Often, the debt will appear on the acquired company's balance sheet and the acquired company's free cash flow will be used to repay the debt.

CDO - collateralized debt obligations

In financial markets, collateralized debt obligations (CDOs) are a type of asset-backed security and structured credit product. CDOs gain exposure to the credit of a portfolio of fixed income assets and divide the credit risk among different tranches: senior tranches (rated AAA), mezzanine tranches (AA to BB), and equity tranches (unrated). Losses are applied in reverse order of seniority and so junior tranches offer higher coupons (interest rates) to compensate for the added risk. CDOs serve as an important funding vehicle for portfolio investments in credit-risky fixed income assets.

ABS - Asset backed security

In finance, an asset-backed security is a type of bond or note that is based on pools of assets, or collateralized by the cash flows from a specified pool of underlying assets. Assets are pooled to make otherwise minor and uneconomical investments worthwhile, while also reducing risk by diversifying the underlying assets. Securitization makes these assets available for investment to a broader set of investors. These asset pools can be made of any type of receivable from the common, like credit card payments, auto loans, and mortgages, or esoteric cash flows such as aircraft leases, royalty payments and movie revenues. Typically, the securitised assets might be highly illiquid and private in nature.

Commercial Paper

Commercial paper is a money market security issued by large banks and corporations. It is generally not used to finance long-term investments but rather to purchase inventory or to manage working capital. It is commonly bought by money funds (the issuing amounts are often too high for individual investors), and is generally regarded as a very safe investment. As a relatively low risk option, commercial paper returns are not large. There are four basic kinds of commercial paper: promissory notes, drafts, checks, and certificates of deposit. Commercial paper essentially can be compared as an alternative to lines of credit with a bank. Once a business becomes large enough, and maintains a high enough credit rating, then using commercial paper is always cheaper than using a bank line of credit.

Credit Crunch



A "credit crunch" is a recessionary period in a debt-based monetary system where growth in debt money (or "credit") has slowed and subsequently causes a drying up of liquidity in an economy.It is often caused by lax and inappropriate lending, which results in losses for lending institutions and investors in debt when the loans turn sour and the full extent of bad debts becomes known. These institutions may then reduce the availability and ease of obtaining credit, and increase the cost of accessing credit by raising interest rates for fear of further losses. In some cases lenders may be unable to lend further, even if they wish, as a result of earlier losses restraining their ability to lend.

A credit crunch is generally caused by an irreversible reduction in the market prices of previously "overinflated" assets and refers to the financial crisis that results from the denouement of this price collapse. In contrast, a liquidity crisis is triggered when an otherwise sound business finds itself temporarily incapable of accessing the bridging finance it needs to expand its business or smooth its cash flow payments. In this case, accessing additional credit lines and "trading through" the crisis can allow the business to navigate its way through the problem and ensure its continued solvency and viability. It is often difficult to know, in the midst of a crisis, whether distressed businesses are experiencing a prolonged and intractable credit crunch caused by mistaken valuations and lending practices, or whether these businesses are experiencing a temporary liquidity crisis which can be traded through and survived.