EIF's Glossary

Refers to the required periodic repayment in instalments of portions of the principal of an instrument prior to its final maturity

In the context of guarantees, the period during which a financial intermediary may include new loans or reference obligations in the guaranteed portfolio

A first-loss portfolio (counter-) guarantee whereby EIF covers a percentage of defaulted amounts on a portfolio up to the cap amount.

The maximum aggregate amount of losses which EIF is liable to pay under a guarantee agreement, expressed as a percentage of the EIF guarantee amount.

The share of profits of the fund (often 20% of proceeds of exits, after return of sums committed by/drawndown from investors and payment of the hurdle) that is allocated to the management (see also definition of waterfall [cross link]).

A mechanism that allows the management to take, once the agreed hurdle has been distributed to the investors, all or an enhanced share of the profits of the fund until the agreed level of carried intereston cumulative distributions following return of capital to investors (i.e. on the hurdle amounts and catch-up amounts) has been reached

The acceptance by the manager of commitments from one or several investors. Several intermediary closings can occur before the final closing is reached.

Any regions below the EU economic development average as defined in the EU Cohesion Policy 2021-2027.

A risk-reduction technique that provides protection, in the form of financial support, to cover losses under stressed scenarios. It is typically used in structured finance to help mitigate risk for the investors in mezzanine or senior tranches. There are several methods of credit enhancement, and it is not uncommon to combine them in a single structured finance transaction. The most common forms are subordination, over-collateralisation, and excess spread, as well as financial guarantees issued by third party guarantors (such as EIF).

A debt fund targeting a relatively high number of investments in non-distressed senior financing.

A single investment that returns the entire value of the fund.

A disposal of an investment by a fund, usually through a trade sale or an IPO, sometimes by means of secondary sale to another fund.

The most junior tranche in a securitisation transaction which covers the first loss risk. Depending on the target credit quality of the tranche above the FLP, it can be sized to cover the historical loss rate or a multiple of it

An equity intermediary holding or targeting to invest in portfolio funds

An investment approach aimed at generating societal benefits to individual stakeholders and society at large at par with financial return to the investor. The purpose of impact investing in enterprises is to support businesses whose business model seeks to generate an intentional and measurable positive impact at par with economic value, and which are managed in an accountable and transparent way.

The maximum aggregate amount of loans or guarantees that may be included in the portfolio covered by EIF.

Tranches which are subordinated to senior tranches, but senior to junior tranches and/or first loss piece (FLP).

Means a legal entity that carries out financial activities on a professional basis which has been given mandate by a Member State or another participating country’s entity at central, regional or local level to carry out development or promotional activities.

Designated on the basis of relevant classifications made by one or more lead organisations with respect to jurisdictions which have not made sufficient progress towards satisfactory implementation of EU and/or internationally agreed standards in connection with AML-CFT and/or tax transparency/tax good governance. There are two types of NCJs: 1.“Restricted Jurisdictions”, and 2.“Prohibited Jurisdictions”. More information is available here

A financing mechanism – notably used in the area of impact investing - whereby the payment of returns to investors is linked directly to the achievement of specific measurable and verified results. See also: social-impact-bond [cross link]

As opposed to public equity, this term refers to equity or equity-type investments in private, not quoted companies (includes venture capital investments).

Any of the following financing agreements: a) a debt agreement which provides that any amount of debt may be converted into equity at a pre-determined price either at the option of the borrower or lessee or by operation of law; or b) a profit and loss participation instrument or other agreement that exposes the investor to the profit and loss of the counterparty; or c) a debt agreement in which the rights of the investor are subordinate (rank junior) to the rights of any holder of subordinated debt of the borrower or lessee. (For the avoidance of doubt, a holder of debt shall not be considered subordinated solely because its rights rank junior to the rights of creditors, such as tax authorities, that are given statutory priority over ordinary senior debt).

The reduction in the capital required to be held by financial intermediaries for a certain type of assets in accordance with applicable capital requirement rules (typically Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms). Under certain circumstances, credit protection arrangements such as guarantees and risk transfer transactions will allow financial intermediaries to benefit from regulatory capital relief

The process of turning financial assets into tradeable debt securities

In the context of a securitisation transaction, the class of securities which have the highest claim against the underlying assets. Often they are secured or collateralised, or have a prior claim against the assets.

A micro, small or medium-sized enterprise as defined in the European Commission SME Recommendation. Access this document here

A specific type of Payment by Result (PbR) scheme, whereby investors' return depends on payments public or private commissioners undertake to make subject to the delivery of pre-defined social outcomes. Watch a video on one of EIF’s SIB initiatives

The stage of development of a company that needs funding for product development and initial marketing. Such companies may be in the process of being set up or may have been in business for a short time but have not sold or are just starting to sell their product commercially.

Securitisation transaction where only the credit risk of an asset portfolio, as opposed to the asset portfolio itself (as in a 'true sale' securitisation), is transferred to the market through risk transfer instruments (financial guarantees or credit derivatives). Synthetic transactions are typically structured with a view to provide regulatory capital relief.

In the venture capital industry, a privately held start-up company that has grown to a valuation of or in excess of USD 1bn.

A sub-set of private equity which refers to investments entailing a substantial element of risk in private, not quoted companies that are in the early stage

The mechanism in fund documentation specifying the order of priority in which proceeds, following payment of expenses, are to be distributed. In a typical structure this will be: •payment of fund expenses and management fee, •return of investors' commitments/contributions, •payment of the hurdle to investors, •payment of catchup to the manager, •split of remaining proceeds between investors and management in accordance with the profit sharing ratio (often 80/20)).