In This Section
Subordination Agreement 
An agreement signed by creditors of a company that subordinate one creditor’s debt under the other (see: Subordinated Debt). This makes one lender more “Senior” in terms of amortization payments or in a bankruptcy case (i.e. in liquidation scenarios, the Subordinated lender would not be paid out until the Senior lender has received all of their money back)
Subordinated Debt
Represents one class of debt that is behind another class of debt in (1) the right to receive certain types of payment (e.g., interest and/or principal), and/or (2) claims to or liens on all or a portion of a common debtor’s collateral.
Sub-Limit
A sub-limit represents a limited portion within an overall capital structure or credit facility. Sub-limits generally represent (1) a limited portion of an overall credit facility that is available for a certain purpose or type of loan, such as a limit on the amount of letters of credit that can be issued under a revolving credit facility; or (2) in the context of an overall borrowing base or collateral formula, a limit on the amount that can be attributable to a certain asset class (such as inventory).
Standby Letter of Credit
A standby letter of credit (SLOC) is a guarantee of payment issued by a bank on behalf of a client that is used as "payment of last resort" should the client fail to fulfill a contractual commitment with a third party. Standby letters of credit are created as a sign of good faith in business transactions and are proof of a buyer's credit quality and repayment abilities.
Standard Costing
A type of cost accounting that uses ratios to compare efficient uses of labor and materials to produce goods or services under standard conditions. Assessing these differences is called a variance analysis. Traditional cost accounting essentially allocates cost based on one measure, labor or machine hours.
Stalking Horse Bid
A stalking-horse bid is an initial bid on a bankrupt company's assets from an interested buyer chosen by the bankrupt company. From a pool of bidders, the bankrupt company chooses the stalking horse to make the first bid. This method allows the distressed company to avoid low bids on its assets.
Springing Financial Covenants
A financial covenant or series of covenants that are tested if certain events or thresholds are “triggered", such as falling below a minimum excess availability amount.
Springing Cash Dominion
Under normal circumstances, the Borrower maintains control of their own lockbox and all cash receipts (where they have the option to transfer cash into their Operating Account or can choose to pay down the Line of Credit).
Sponsor
A Sponsor is typically a private equity investment firm, typically a private equity firm that engages in leverage buyout transactions. In addition to bringing capital to a deal, financial sponsors are expected to bring a combination of capital markets expertise, various important contacts, strategies for operational improvement, and the experience of owning leveraged companies.
Split Collateral Deal vs. 2nd Lien
A Split Collateral Deal is a transaction where two lenders are providing secured financing to a company where one lender has a 1st priority security interest in certain assets and the other lender has a 1st security interest in another pool of assets.
Sources & Uses
Usually depicted as a table summarizing the breakdown of all sources of funds that are available and use of funds to effectuate the closing of a transaction. Sources can include availability generated from the revolving line of credit, proceeds from a term loan, proceeds from other debt and\or equity, and cash.
Slow-Moving Inventory
SKU’s that have not shipped in a certain amount of time and have very low inventory turnover ratios (or high inventory days).
SKU
Abbreviation for "Stock-Keeping Unit." A SKU is usually a distinct item for sale and helps encompasses attributes that distinguish it from other products sold.
Shrink
Short for “Inventory Shrinkage.” This term describes the loss of inventory during a production process, or any loss incurred between receiving the manufactured goods from an inventory vendor and selling them to the end buyer.
Ship Test
Also referred to as an invoice test, a ship test is performed as part of an ABL Field Exam. The ship test compares the invoice date to either the Bill of Lading date or the delivery date, depending on the FOB terms of the transaction.
SG&A
Short for Selling, General, and Administrative; it includes primary operating expenses including salaries, rents, marketing expenses, etc. It is found on the income statement, generally a line item in the operating expense section.
Senior Secured
A credit facility that is senior secured is at the very top of the capital structure. It has priority over other tranches of debt.
Senior Leverage vs. Total Leverage
“Senior Leverage Ratio” means, as of the date of determination, the ratio of (a) the Pari Passu Indebtedness of the Company and its Restricted Subsidiaries on such date, to (b) EBITDA of the Company and its Restricted Subsidiaries for the most recently ended four fiscal quarters ending immediately prior to such date for which internal financial statements are available.
Total Leverage - combination of operating and financial leverage obtain total leverage. If a firm has a high amount of operating leverage and financial leverage, a small change in sales will lead to a large variability in EPS.
Senior Lender
Senior Lender means each holder of a Senior Note. Senior Lenders can be separated by an inter-creditor agreement to determine which collateral belongs to which lender and who gets paid out first in an event of default.
Security Interest
A legal right a lender has over an asset or the assets of a company to secure the performance of a debt obligation. Asset based lenders typically have a security interest in all assets of their borrowers.
