A credit spread is the extra yield a company pays to borrow compared with the US government for the same length of time. If a five-year Treasury yields 4 percent and a company’s five-year bond yields 5.5 percent, the spread is 1.5 percentage points, or 150 basis points (one basis point is 0.01 point). That gap is the market’s price for the chance the company won’t pay back, plus a bit for being harder to sell than a Treasury.

Three agencies rate most of the world’s traded debt: S&P Global Ratings, Moody’s and Fitch. They use the same underlying ladder, written two different ways. S&P and Fitch use letters with plus and minus signs. Moody’s uses a different capitalisation and adds the numbers 1, 2 and 3. This page lines the scales up notch by notch and covers the short-term scales, the default symbols, outlooks and watches, historical default rates, and the vocabulary that goes with all of it.

An accordion feature — also called an incremental facility — is a provision in a credit agreement that allows the borrower to increase the size of the existing loan facility without negotiating a new credit agreement. Like the instrument it is named for, the facility can expand when the borrower needs more room. What It Is When a company closes a syndicated credit facility, it typically negotiates a maximum size — a term loan of $500 million, for example, or a revolving credit facility of $250 million.

A letter of credit and a standby letter of credit are both bank-issued instruments that guarantee payment, but they are designed for fundamentally different purposes and are triggered under opposite conditions. Treating them as interchangeable is a common error with real transactional consequences. What They Are Documentary Letter of Credit (LC) A commercial or documentary LC is a payment mechanism. It is designed to be drawn upon — the expectation is that the beneficiary (typically the seller/exporter) will present the required documents and receive payment as the normal course of the transaction.

A make-whole call provision is a clause in a bond indenture that allows the issuer to redeem the bond before maturity by paying the investor a price calculated to compensate for all future cash flows the investor would have received. The result is that early redemption costs the issuer significantly more than par — which is exactly the point. What It Is Standard callable bonds give issuers the right to redeem at predetermined call prices on predetermined dates.

A PIK loan — Payment in Kind loan — is a debt instrument where the borrower pays interest not in cash but by issuing additional debt. Instead of writing a check for interest each quarter, the borrower adds the interest to the outstanding principal balance. The lender receives more paper; the borrower preserves cash. What It Is In conventional lending, interest is paid periodically in cash. PIK flips this. The borrower’s interest obligation accumulates as additional loan principal, which itself accrues further interest in subsequent periods.

A springing lien is a security interest that does not exist at loan origination but automatically comes into force when a specified triggering event occurs. The lien “springs” into existence — without any additional documentation or action by either party — the moment conditions are met. What It Is In secured lending, a lien gives the lender a claim on specific assets if the borrower defaults. Normally, liens are granted at closing: the borrower pledges assets, the lender takes a security interest, and the arrangement is documented in the credit agreement.

Toggle notes are a hybrid debt instrument that allows the issuer to pay interest either in cash or by issuing additional debt — toggling between the two modes, typically on a period-by-period basis. The toggle is a contractual right, not a default. The issuer elects how to pay; the election itself does not constitute a breach. What They Are Toggle notes combine features of conventional cash-pay bonds and PIK (Payment in Kind) instruments.