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Term sheets – glossary of terms
| 15-03-2018 | treasuryXL |
However, when entering into a loan or derivative it is always prudent to draw up a term sheet stating all the relevant criteria to enable the bank to quote a price. Once the trade is effected, then a confirmation is sent which should have the same terms and conditions as the term sheet. Here is a list of terms that are regularly used and their meaning. They mostly apply to physical products as well as to derivatives.
American Option – an option that can be exercised on any working day until the expiration date
Bermudan Option – an option that can be exercised on more than one specified date before the expiration date
European Option – an option that can only be exercised on the expiration date
Binary Option – an option whose payoff is either an agreed amount (monetary or asset) or nothing at all
Call Option – The right, but not the obligation, to purchase a specified underlying asset, at a specified price (Strike price) on a specified date in the future
Put Option – The right, but not the obligation, to sell a specified underlying asset, at a specified price (Strike price) on a specified date in the future
Cap – an option that pays out when a specified interest rate price exceeds a pre-agreed level (Strike price)
Floor – an option that pays out when a specified interest rate price falls below a pre-agreed level (Strike price)
Collar – the simultaneous purchase of a Cap and sale of a Floor on the same specified interest rate for the same nominal amount, protecting the purchaser from rate rises whilst negating the cost of the option by selling the Floor
Strike price – the price (level) at which an option holder can exercise their rights under the agreed option
Premium – the cost of buying an option
Trade date – the date when the specifications of a contract are transacted
Effective date – the start date of a contract
Termination date – the end date of a contract
Payment date – the date on which a payment is made
Fixing date – the date on which a floating rate is set/fixed
Forward start – a contract agreed on a trade date, that becomes effective on a specified future date
Tenor – the length of time that a contract is valid
Reference rate – the specified interest rate (or FX spot) index upon which future cash flows are based
Fixed rate – an agreed interest rate that cannot vary over the lifetime of the contract
Float rate – an agreed index rate that can be periodically reset over the lifetime of the contract
Derivative – a financial instrument that derives its value from the value of an underlying asset
Break clause – a clause written into the contract, that releases both parties from the contract in the event of a pre-agreed relevant event taking place
If you are interested to know what the effect of these terms can have on a contract, please contact us for more detailed information.
Hoe banken hun ondernemersrisico uitbesteden.
| 14-03-2018 | Frank Wijn |
Als oud-bankier ben ik vanaf 2008 bezig om mooie ondernemingen bij te staan in hun contacten met de bank, hen uit te leggen wat bankafspraken daadwerkelijk inhouden, bezig om ondernemers te behoeden voor “foute afspraken” en hun bankafspraken (waaronder financieringen) te optimaliseren.
Mijn werkwijze is simpel en doeltreffend. Alle afspraken met de bank worden gescreend en de teksten of afspraken die voor mij verrassend of onbegrijpelijk zijn, worden geel gearceerd. Zo kreeg ik mijn eerste derivatencontract onder ogen in het voorjaar van 2012. Het hele contract werd geel gearceerd. Ik begreep werkelijk niet waarom deze MKB-onderneming een cap met een knock-in-floor had gekocht ter afdekking van zijn renterisico. Niet veel later bleek dat zowel de klant, als de accountmanager van de bank het mij ook niet uitgelegd kregen. Mijn interesse was gewekt en het speurwerk begonnen. Dit was de opstap naar het mede-oprichten van Kennis Centrum Rentederivaten.
In de jaren 2012 en 2013 was ik vooral roepende in de woestijn, totdat ik mijn opgedane kennis en verbazing op liet tekenen door een journalist van Follow The Money. Het 2 pagina tellende artikel werd verkocht aan de Volkskrant en de deksel van de beerput kwam enigszins los.
In 2014 zag het tijdelijke samenwerkingsverband KCR het daglicht en in die samenstelling trokken wij door het land. Langs Nederlandse Vereniging van Banken, hoofddirectie van grootbanken, Autoriteit Financiële Markten, journalisten van dagbladen en de laatste 2 jaar ook de Derivatencommissie. Ondernemersverenigingen als MKB Nederland (en later ONL) gaven niet thuis. Te complex en te vervelend voor de banken.
Nu, vier jaar later, is het Uniform Herstel Rentederivaten (een broertje van Deltaplan KCR) in ontwikkeling. Voor een te kleine doelgroep, met teveel invloeden van de banken en te complex voor MKB-ondernemers om te begrijpen. Het niet-begrepen derivatencontract was destijds 6 pagina’s en de “oplossing” inmiddels 244 pagina’s. Maar goed er wordt wat gecompenseerd, dus beter dan niets.
Brengt mij bij de verbazing van vandaag de dag. Dat rentederivaten en niet-professionele / niet-deskundige klanten een moeilijk houdbare combinatie is, lijkt steeds duidelijker. Maar nu kwam ik zeer recent een staaltje renterisicomanagement van de bank zélf tegen. De ABN Amro Bank om precies te zijn. Hoe gaat deze bank om met het renterisico dat zijzelf zegt te lopen?
Lees en verbaas u. Let op hun woordkeuze “interpretatie van”. Tegen zo’n tekstblok in een financieringsofferte is geen derivatenproduct opgewassen.
“Klant centraal” was het toch?
Frank Wijn
Expert in financiële duidelijkheid
IPOs – how to bring your company to the market
| 13-03-2018 | Lionel Pavey |
What is it?
An IPO is when a company offers its shares to the public, which are normally purchased by institutional investors as well as, though usually in smaller amounts, to retail investors – individuals. A company first needs to issue a prospectus to potential buyers – this is a financial document that discloses all relevant information and financial statements about the company, in order that investors can determine the value of the company. 2 critical issues need to be determined – the share price and the number of shares to be issued. Shares are underwritten by one or more banks – they undertake the risk of bringing the shares to market and placing them with buyers. They also carry the risk of having to hold shares if they do not get sold at the time of the IPO.
Why do it?
Companies that have grown eventually start looking for alternative ways of raising funds – either for expansion or investment. The normal routes include bank loans, private placements, or capital injections via new shareholders, along with going public. It allows them to raise equity, offer incentives to management and employees, as well as increasing the awareness and profile of the company. There are large pools of liquidity – specifically pension funds and investment funds – that are looking for attractive investment opportunities. A major consideration for selling shares as opposed to private placements and loan products is the fact that, normally, there is never a need to repay shareholders their capital. As a shareholder you gain access to the increase of the value in the shares as well as dividend payments, both of which reflect the growth of the company. A shareholder has a future claim on a share of a company.
What are the advantages?
A cheaper route to long term capital
Diversification of ownership
The potential ability to attract better management
Alternative source of funding for acquisitions
A simple metric to determine the value of a company – share price * amount of shares
What are the disadvantages?
Considerable paperwork – business information, statements of accounts
Major costs relating to legal, marketing and accounting work
Primary information about your company that is freely published – your competitors
Large amount of time and effort needed to prepare everything
Dilution of power to shareholders
Compliance to new reporting methods – everything must be delivered on time
The issue might not be a success
Considerations
As a public company, reporting has to take place within certain time frames. This could, therefore, entail considerable investment in updates to accounting and reporting software – and processes – to comply with the regulations. Additionally, whilst preparing for an IPO, the company must still be run and managed as before. All these extra steps are on top of the daily management. Time must be found to make presentations and answer question from accountants, lawyers, investment banks and regulators.
Going live
If all has gone according to plan, an IPO will be successful and the share price will rise. The company’s profile has been increased and business grows. However, there are new responsibilities to shareholders, management and employees. There is a lot more communication necessary.
Final point
In a normal IPO, a company offers a mix of existing shares and new shares into the offering. This allows existing shareholders to realise a profit on their previous investment whilst also offering the company new capital. For the 3 Dutch companies mentioned at the start, all 3 issues are, basically, secondary offerings – no new shares are being created.
Lionel Pavey
Cash Management and Treasury Specialist