At Caravel Financial we believe strongly in adding value to everything that we do – including this website! We have therefore provided this glossary for your future reference and hope that you will find it useful.

Concessions and Greenfield Projects

  • BOT

    A concession form in which the project developer builds and operates the project and later transfers it back to the concession granting entity at the end of the concession period.

  • Bridge Financing

    Financing that is arranged on a temporary basis (often to meet time constraints) while the long term project debt is being prepared.

  • Bullet Loan

    A loan whose interest is paid periodically but whose entire principal is paid off at the end of the term in one large payment. Also known as a balloon loan.

  • Cash Flow Waterfall

    The order of priorities in which project participants receive cash payments.

  • Completion Guarantee

    A guarantee given by project sponsors to ensure that lenders are covered against construction and commissioning risks.

  • EPC Contract

    An agreement in which the contractor is responsible for the engineering, procurement and construction of the project.

  • Limited Recourse

    A structure that does not give lenders access to the promoters’ private resources except under specific circumstances.

  • Offtake Agreement

    A contractual arrangement between the project company and the client whereby the client guarantees that it will buy the project’s output at prices that are set by a predetermined formula.

  • Public Private Partnership (PPP)

    A framework under which the government and the private sector come together to develop a project through a concession structure.

  • Seed Capital

    Initial capital used to fund feasibility and technical studies.

  • Shadow Bid

    A proposal developed by an advisor retained by the concession granting entity against which the actual proposals submitted by the private sector can be compared.

  • SPV

    A special purpose vehicle (also known simply as a project company) that is set up with the sole purpose of developing a project.

  • Step-in Right

    The right given to the project’s lenders to assume the responsibility of operating the project in place of the sponsors in case an event of default occurs.

  • Take or Pay

    An agreement that obligates the offtaker to either buy a project’s output or pay a pre-agreed amount.

  • Unitary Payment

    A payment made by the concession granting entity to the project company which may be comprised of usage payments, availability payments and service performance payments.

  • User Charges

    Payments that are made directly to the project company by the end users of its output.

Private Equity and M&As

  • Carried Interest

    Is the share of the profits that the private equity fund manager receives after the fund exits a successful investment that generated a return exceeding a certain hurdle rate.

  • Drag Along Rights

    The right of one shareholder to force other shareholders into acting or voting along with him. This can include the right to force minority shareholders to sell their stakes with the same terms as an exiting majority shareholder.

  • Earn Out

    A mechanism whereby the price a seller receives for his stake in a business is linked to its future profitability with deferred payments being made to the seller upon reaching pre-agreed profitability targets.

  • Equity Kickers

    Rights of conversion into a number of a company’s shares (also known as warrants). They are usually used in conjunction with mezzanine finance.

  • General Partner

    The firm that gathers investors and pools their contributions into a private equity fund which it then proceeds to manage in return for an annual fee and carried interest.

  • Investment Thesis

    Is the business case or rationale on which the private equity firm bases its decision to invest in a company. Components of a good investment thesis include a strong and dedicated management team, a compelling growth story, a clear strategy for deploying the new capital, and the existence of proven demand for the company’s products.

  • Leveraged Buyout

    The act of acquiring a publicly traded company and taking it private using debt financing. The acquisition debt is usually nonrecourse to the buyers and is supported by the cash flows of the acquired company.

  • Limited Partner

    A passive investor in a fund that does not take an active role in its management.

  • Management Buyout

    A transaction in which the management of a firm acquires shares using debt. Often private equity firms co-invest with the management team.

  • Mezzanine Finance

    Is a form of hybrid financing that combine aspects of basic equity shares and plain vanilla debt. They can take the shape of preferred shares or subordinated debt or a mixture of both.

  • Post-money Valuation

    Is the value of the company right after the private equity deal is executed.

  • Pre-money Valuation

    Is the value of the target company before the private equity deal is executed.

  • Ratchet

    A mechanism whereby management’s shareholding increases at the expense of other shareholders when specific performance milestones are reached.

  • Sweat Equity

    Free shares given to the management team to compensate them for their time and effort.

  • Tag Along Rights

    The right of a group of shareholders to sell their stake at the same terms as an exiting shareholder.