VOCABULARY/KEY WORDS (CASE ELCOTEQ SE FOR HSE CCICC 2006)

Asset Swap (ASW) - an asset swap occurs when an investor, wishing to swap a fixed
coupon bond into a floating rate note, sells his bond to a dealer at the current market price
and simultaneously buys a floating rate note at par. The dealer hedges the floating rate
obligation by entering into an offsetting swap with another counterpart;

Bond - a form of transferable, tradable (standardized] interest-bearing or non-interest

bearing SECURITY with a yield issued by central or local governments, companies, banks
and other institutions; bonds are usually a form of long-term security but do not always
carry fixed interest (zero coupon bonds);

Covenant - promise in an indenture, or any other formal debt agreement, that certain
activities will or will not be carried out; the purpose of a covenant is to protect the lender’s
position; covenants are in general divided into positive, negative and information
covenants; covenants can cover everything from]delivering financial information to certain
financial ratios that must be maintained;

Credit - a borrower or an issuer;

Credit Default Swap (CDS) - a credit derivative transaction in which two parties enter into
an agreement, whereby one party pays the other a fixed periodic coupon for the specified
life of the agreement; the other party makes no payments unless a credit event, relating to a
predetermined reference asset, occurs. if such an event occurs, the party will then make a
payment to the first party, and the swap will terminate; the size of the payment is usually
linked to the decline of the reference asset's market value following the determination of
the occurrence of a credit event;

Debt instrument - includes loans, bonds, junior/subordinated loans, notes, commercial

paper;

Debt outstanding - debt that has been issued and placed with investors (as opposed to debt
commitments obtained but not yet drawn down);

Exposure in shares - risk taken in investing into equities;

Fixed income investment - investment in bonds, loans, commercial paper, and similar
instruments that promise a specific yield, interest or coupon over the (finite) maturity of the
instrument;

Inaugural issue - first issue of a specific instrument by an issuer;

Interest rate swap transaction - a transaction under which two streams of (for example,
interest rate payments) cash flows are exchanged (e.g. fixed coupon to floating coupon);

Issuance of debt - the placement of a debt transaction;

Issuer in distress - borrower with a severe liquidity shortage, problems to meet financial
obligations, lenders unwilling to roll-over maturing debt, and/or whose debt is trading in
the secondary market on the basis of expected recovery values rather than on a spread
basis;

Name (new) – company, borrower, issuer;

Note purchase agreement - private placement agreement which sets out the terms at
which investors purchase the debt note from the borrower;

Spread (high, low, etc) - the credit risk premium paid by a credit, and expressed as the
difference between the yield and the yield on a risk free instruments (e.g. government
bonds, interest rate swaps and / or money market interest rate) over the same maturity. In
the bank the bank loan determined as a margin;

Option Adjusted Spread (OAS) - OAS is a methodology using option pricing techniques to
value the imbedded options risk component of a bond's total spread; imbedded options
are call, put or sink features of bonds; mainly used for fixed income products, OAS
measures the yield spread not directly attributable to the fixed income's characteristics;
OAS is a measurement tool for evaluating price differences between similar products with
different embedded options; a larger OAS implies a greater return for greater risks;

Shadow rating - an informal credit opinion by other than rating agencies; expressed in
similar terminology but not necessarily comparable with ratings issued by public credit
rating agencies; shadow ratings are sometimes used by intermediaries in the marketing of a
new issue;

Syndicate - a group of banks formed to provide a credit or to underwrite or manage an

issue of a security;

Syndicated credit - a credit or the issue of a security that has been subjected to a
management or underwriting by a syndicate;

Syndicated lending - lending in syndicated form; typically refers to syndicated bank

facilities and loans;

Tenor - the term to maturity of a debt instrument;

Tranche - a predetermined portion of a financial transaction (from the French meaning

“slice”); a certain debt issue can have several tranches, i.e. notes have same common
terms and conditions but different payment dates, maturity or other specific terms;

Yield - the income from a SECURITY as a proportion of its current market price;

Sources:
Bloomberg, www.investopedia.com
Penguin International “Dictionary of Finance”;
Nordea Markets;