This private credit glossary explains the structures, terminology, and concepts used in the private credit FAQs. It may also be adapted as a broader member resource or retail investor/ consumer guide.
No glossary terms match your search.
| Term or phrase | Meaning and relevance to private credit strategies |
|---|---|
| Additionality | The extent to which financing contributes to an environmental or social outcome that would not have occurred, or would have occurred differently, without financing. In private credit, additionality may arise because capital is unavailable on comparable terms, or because the lender provides materially different timing, certainty, tenor, flexibility, structuring, risk appetite or non-financial support. It should be supported by a credible, evidenced explanation of the lender’s contribution rather than assumed from the borrower’s sector alone. (Refer to the Assessment Note for products trading with “impact” in the label.) |
| Arrears | A failure by a borrower to make a contractual payment when due, including principal or interest obligations. |
| Asset-backed lending | A form of lending where repayment is primarily supported by specific assets or pools of assets. Examples include receivables, equipment, inventory, royalties, aircraft, shipping assets, or contracted cashflows. Understanding the underlying assets is important because the activities associated with those assets may be relevant when assessing financed activities, exclusions, positive sustainability-related claims or impact claims. |
| Beneficial owner | The individual, company or entity that ultimately owns or controls a borrower, even where ownership is held through multiple legal entities. Beneficial ownership may differ from the immediate legal owner and can be relevant when assessing ownership structures, understanding financed activities and identifying relationships that may not be immediately apparent from the legal borrowing entity alone. |
| Borrower | The entity receiving financing from a lender. Depending on the structure, the borrower may be an operating company, project company, investment fund, property trust, holding company or Special Purpose Vehicle (SPV - see definition of SPV below). Certification assessments often require consideration of both the borrower and the activities ultimately supported by the financing. |
| Borrower eligibility criteria | The requirements a borrower must satisfy before being eligible to receive financing under a particular strategy. In sustainable or impact-labelled private credit funds, eligibility criteria may include positive sustainability characteristics, impact characteristics, sector requirements or other conditions that influence capital allocation decisions. |
| Capital call | A request by a private market fund requiring investors to provide a portion of their committed capital. Capital calls are commonly used by private equity, infrastructure, and private credit funds when investments are made. Capital calls are relevant to subscription facilities, where repayment is supported by investors' commitments rather than the underlying portfolio assets. |
| Capital commitment | The amount an investor has contractually agreed to invest in a private market fund when requested through capital calls. Capital commitments are relevant when understanding subscription facilities and certain fund-financing structures discussed in the FAQs. |
| Capital structure/ Capital stack | The combination of debt and equity used to finance a company, project or asset. Capital structures may include senior debt, junior debt, mezzanine debt, preferred equity and ordinary equity. Although certification assessments focus primarily on the activities being financed and the claims being made about the product, understanding capital structure helps explain the position of a lender relative to other capital providers and the level of influence or protection associated with a financing arrangement. |
| Collateral | Assets pledged by a borrower to support repayment of a loan. If a borrower defaults, lenders may have rights to enforce against the collateral. Examples include property, equipment, receivables, infrastructure assets or other financial assets. Collateral can be important when understanding asset-backed lending and the assets ultimately supporting a facility. |
| Construction monitoring | Ongoing review of a development project’s progress, costs, approvals, construction programme and material incidents. It is often supported by quantity surveyor reports, site inspections and milestone certification. In the FAQs, construction monitoring may evidence how a real estate debt manager uses information and drawdown controls to respond to material sustainability or project risks. |
| Contribution | The role a financing arrangement plays in supporting a particular environmental or social outcome. Within the Assessment Note – products trading with 'impact' in the label, contribution helps explain the connection between the financing provided and the outcomes being claimed. Contribution is related to, but distinct from, additionality. |
| Cost-to-complete | The estimated amount required to finish a development, including remaining construction costs and appropriate contingencies. Lenders compare this amount with undrawn debt and committed equity before further drawdowns. A material shortfall can affect project viability, agreed sustainability features and the credibility of related product claims. |
| Covenant | A contractual obligation within a loan agreement requiring a borrower to undertake, maintain or avoid specified actions. Covenants may relate to financial performance, reporting obligations, operational matters or sustainability-related requirements. Throughout the FAQs, covenants are frequently discussed as mechanisms through which lenders monitor borrower performance and influence behaviour. |
| Covenant breach | A failure by a borrower to comply with a covenant contained within a loan agreement. A breach may trigger lender engagement, requests for remediation, waivers, restructuring discussions or enforcement rights. Covenant breaches are often important moments in the ongoing responsible management of a private credit investment. |
| Credit committee | A committee or equivalent governance body responsible for approving, declining, reviewing or escalating lending transactions. It commonly considers borrower risk, loan structure, valuation, financing terms and material responsible investment matters. The function does not need to be performed by a standalone committee, provided equivalent governance, delegated authority, documentation and appropriate independence from origination are evident. |
| Credit underwriting | The process of assessing a borrower's ability to repay a loan and determining whether financing should be provided. Underwriting typically includes analysis of financial, operational, legal, and other relevant risks. Throughout the FAQs, underwriting is frequently discussed as the point at which sustainability-related, impact or exclusion considerations may influence lending decisions. |
| Default | A private credit exposure may be considered in default where the borrower is materially past due on a contractual payment obligation, a material covenant breach remains unremedied beyond an agreed cure period, an insolvency, administration, receivership or similar event has occurred, or the manager considers the exposure unlikely to be repaid in full without enforcement or realisation of security. |
| Deteriorating exposure | A credit exposure showing increased risk or declining borrower, asset or project performance, but which may not yet be in default. Indicators can include covenant pressure, valuation decline, cost overruns, delays, arrears or material incidents. Deteriorating exposures may require enhanced monitoring, escalation, impairment review or reassessment of any sustainability, transition or impact claim. |
| Development finance | Private credit provided for property acquisition, construction, refurbishment, conversion or redevelopment. Repayment commonly depends on asset sales, leasing or refinancing. Assessment may consider the borrower, project, site, intended end use, tenants, construction practices, climate risks, agreed building performance and the evidence used to control drawdowns and monitor delivery. |
| Development margin | The forecast profit of a property development, usually expressed as a percentage of total development cost or end value. It is primarily a financial underwriting measure. A deterioration in development margin can nevertheless affect a project’s capacity to deliver agreed sustainability features or remain within the assumptions supporting a sustainability or impact claim. |
| Direct lending | Lending negotiated directly between a lender and borrower rather than through public debt markets. Direct lending often provides stronger access to borrower information, negotiated information rights and more direct engagement opportunities than public credit. Many examples in these FAQs use direct lending structures, while the assessment approach remains applicable to other private credit structures where relevant. |
| Distressed debt | Debt issued by borrowers experiencing financial difficulty, elevated default risk or financial restructuring. Distressed debt investors may acquire loans at discounted prices and participate in restructurings or work-outs (see definition below). |
| Drawdown | An advance of funds under a committed facility. Private credit facilities may be drawn once or in stages. In development finance, later drawdowns are often conditional on quantity surveyor certification, cost-to-complete sufficiency, planning or construction milestones and remediation of material issues. |
| Economic activity | The underlying business activity, project or operation being financed. Examples include renewable energy generation, residential property development, healthcare services, manufacturing, or transportation. Depending on the sustainability-related claim made, certification assessment may focus on the economic activity being financed rather than solely on the legal structure through which financing is provided. |
| Facility | A loan or financing arrangement provided to a borrower. Facilities may take many forms including revolving credit facilities, term loans, subscription facilities, Net Asset Value (NAV - see definition below) facilities and project finance arrangements. The term appears throughout the FAQs because private credit structures are often described as facilities. |
| Financed activity | The activity, project, asset, or business operation ultimately supported by financing. The financed activity may differ from the immediate legal borrower where financing is provided through structures such as SPVs, holding companies, or investment funds. Assessment considerations throughout the FAQs focus on identifying and understanding the financed activity. |
| First mortgage | A mortgage that generally ranks first over a property and gives the lender priority over junior secured creditors if the security is enforced. The security position does not remove the need to assess the borrower, property, tenants, end use or product claims where those matters are relevant to Certification. |
| Fund financing | Lending provided to an investment fund rather than directly to an operating company. Common forms include subscription facilities and NAV facilities. Fund financing structures often require different assessment approaches because the financing supports a portfolio of investments rather than a single operating business. |
| Fund-of-funds | A fund that invests in other investment funds rather than directly investing in borrowers, companies, projects or assets. Fund-of-funds structures often raise questions regarding transparency, look-through and manager due diligence. |
| General Partner (GP) | The manager responsible for investment decisions within a private market fund. The GP typically controls borrower selection, portfolio construction, monitoring activities, and fund governance. In many private credit structures, the GP is the primary decision-maker responsible for implementing the investment strategy. |
| Green loan | A use-of-proceeds loan made available exclusively to finance or refinance eligible green projects. A credible green loan framework ordinarily addresses use of proceeds, project evaluation and selection, management of proceeds and reporting. The presence of a green loan does not automatically establish that the entire private credit product is sustainable. |
| Green Star / Green Star NZ | Building and community rating systems administered by the Green Building Council of Australia and New Zealand Green Building Council. A rating may provide evidence about selected design, construction or operational sustainability features, but RIAA will consider its scope, status and relevance to the claim rather than treating the rating alone as conclusive. |
| Hybrid capital | Financing that combines characteristics of debt and equity, such as preferred equity, convertible instruments or mezzanine facilities with equity-linked features. Where a product sits at the boundary of private credit and private equity, RIAA will consider the substance of the exposure, the rights held and the activities being financed. |
| Impact lending | Private credit intentionally provided to contribute to measurable environmental or social outcomes alongside a financial return. For an impact-labelled product, RIAA assesses whether impact objectives influence capital allocation, the manager has a credible contribution narrative, outcomes are monitored and material negative effects are considered. |
| Impact objective | The environmental or social outcome that an impact strategy intends to support. Impact objectives should be identified before capital is deployed and play a significant role in borrower selection and portfolio construction within impact-labelled strategies. |
| Impact outcome | The environmental or social result that a strategy seeks to achieve or has achieved. Impact outcomes may relate to areas such as affordable housing, healthcare access, renewable energy generation or financial inclusion. |
| Impairment | The recognition or assessment of a reduction in the recoverable value of a credit exposure for financial reporting, investor reporting, valuation, credit monitoring or internal risk management. Timely recognition of impairment or negative revaluation is relevant where valuation-dependent portfolio metrics, classifications or responsible investment claims are reported to investors. |
| Independent verification | Review of information, performance or a methodology by a party independent of the person making the claim. In these FAQs, independent verification may support SPT performance, impact data, index methodology or other claims, but the type and depth of verification expected will depend on the claim and applicable market framework. |
| Information rights | Contractual rights that provide lenders with access to borrower information that may not be publicly available. These rights can include financial reporting, operational updates, compliance reporting, and other information relevant to monitoring a loan. Information rights are a recurring feature throughout the FAQs. |
| Interest margin adjustment / margin ratchet | A contractual increase or decrease in the credit margin paid by a borrower, commonly linked to achievement of SPTs within an SLL. The adjustment is one loan feature and does not, by itself, demonstrate that the borrower, financed activity or product is sustainable or impact-oriented. |
| Junior debt | Debt that ranks below senior debt but above equity in the capital stack. Junior lenders accept higher risk because they are repaid only after senior lenders have been satisfied in an insolvency or enforcement scenario. Junior debt therefore carries higher risk and potentially higher returns than senior debt. Throughout the FAQs, a loan being classified as junior debt does not change the need to assess the underlying borrower, financed activities, sustainability characteristics or impact characteristics of the financing. |
| Limited Partner (LP) | An investor in a private market fund who provides capital but does not typically participate in day-to-day investment decisions. LPs usually rely on the GP to implement the investment strategy. |
| Loan agreement | The legal contract governing a lending arrangement. Loan agreements set out repayment obligations, covenants, reporting requirements, events of default, security arrangements and other rights and obligations. |
| Loan origination | The process of sourcing, assessing, structuring, negotiating, and approving a new loan. Many responsible investment processes begin at origination, although ongoing monitoring remains important throughout the life of the facility. |
| Loan portfolio | The collection of loans held by a lender, investment fund, or investment strategy. Portfolio characteristics are often relevant when assessing sustainability claims, impact claims, disclosure practices, and overall strategy implementation. |
| Loan-to-Cost Ratio (LTC) | A measure comparing a development loan with the total cost of the property project. LTC is commonly used in development finance alongside LTV and cost-to-complete analysis. It is a financial risk measure rather than a responsible investment indicator, although changes can affect delivery of project commitments. |
| Loan-to-Value Ratio (LTV) | A measure comparing the size of a loan to the value of the asset securing it. LTV ratios are commonly used in real estate debt and asset-backed lending. |
| Look-through assessment | An assessment approach that considers the underlying assets, projects, borrowers, investments or economic activities supported by a financing structure rather than assessing only the immediate legal borrower. |
| Material sustainability issue | An environmental, social or governance matter that could reasonably influence a lending decision, borrower or asset performance, investor understanding, or the credibility of a responsible investment, sustainability, transition or impact claim. Materiality is assessed in the context of the borrower, asset, sector, product and claim. |
| Materiality | An exposure, event or matter that could reasonably be expected to influence investor decision-making. |
| Mezzanine debt | A form of debt that sits between senior debt and equity in a capital stack. Mezzanine debt typically carries higher risk than senior debt and may include features such as warrants, profit participation or equity conversion rights. Mezzanine debt is commonly used in sponsor-backed transactions, leveraged buyouts and growth capital financings where additional capital is required beyond what senior lenders are willing to provide. Throughout the FAQs, mezzanine debt may provide lenders with greater access to information or influence over borrowers than some other forms of financing, but the Responsible Investment Standard continues to focus on the activities being financed and the claims being made about the product rather than the financing instrument itself. |
| NABERS / NABERS NZ | Rating systems for the measured operational performance of buildings, including matters such as energy, water, waste or indoor environment depending on the rating used. A current rating may support assessment of property performance, but it does not replace review of the borrower, asset, tenants, end use or the scope of the product claim. |
| NAV facility | A loan provided to an investment fund where repayment is supported primarily by the value of the fund's underlying investments rather than investor capital commitments. NAV facilities frequently require consideration of the underlying portfolio and associated exposures. |
| Net Asset Value (NAV) | The value of a fund's assets minus its liabilities. NAV is commonly used to measure the value of private market funds and may form the basis for certain fund financing arrangements. |
| Occupation certificate / occupancy permit | A certificate or permit issued under the relevant jurisdiction confirming that a completed building or part of a building is suitable for occupation. It is a common development finance milestone and may be linked to drawdown, completion or refinancing conditions. |
| Operating company | The business undertaking the underlying commercial activity being financed. An operating company may differ from the legal borrower where financing is provided through holding companies or SPVs. |
| Ordinary (common) equity | The most junior form of capital in a company or project. Ordinary equity holders typically receive returns only after all creditors and preferred equity investors have been paid and therefore bear the greatest financial risk. In return, they benefit from any residual value created by the business. Ordinary equity investors usually have governance rights such as voting on directors and major corporate decisions. Throughout the FAQs, ordinary equity is often referenced to explain where private credit sits within a capital structure and why private credit investors typically exercise influence through lending arrangements, information rights and contractual obligations rather than through shareholder voting rights. |
| Practical completion | The stage at which construction is substantially complete and the asset can be used for its intended purpose, apart from minor defects or outstanding work. Practical completion is commonly certified under the construction contract and may trigger drawdown, repayment, leasing or reporting consequences. |
| Pre-sale / pre-commitment covenant | A loan requirement that a development achieve a specified level of contracted sales, leases or other commitments before a drawdown or project milestone. It helps manage completion and repayment risk and may also provide evidence about the intended tenants or end use of the financed property. |
| Preferred equity | A form of equity investment that typically ranks ahead of ordinary equity but behind all debt in the capital structure. Preferred equity holders receive preferential rights to dividends, distributions or proceeds on liquidation, but usually do not enjoy the same repayment protections as lenders. Preferred equity is often used in real estate, infrastructure, and private market transactions where investors seek a risk-return profile that sits between debt and ordinary equity. Although preferred equity is not itself a private credit instrument, it may appear within hybrid capital structures or strategies sitting at the boundary between private credit and private equity. Where preferred equity exposures exist within a product, assessment requires consideration of the underlying activities, projects or companies being financed. |
| Private credit | Lending negotiated privately between borrowers and lenders rather than issued and traded through public debt markets. Private credit includes direct lending, real estate debt, infrastructure debt, asset-backed lending and fund financing. For these FAQs, listed or readily transferable bonds are public credit instruments even where the issuer is privately owned, they are not treated as private credit merely because the issuing entity is private. |
| Private debt | A term commonly used interchangeably with private credit. |
| Private equity sponsor | A private equity firm that owns or controls a company receiving financing. Sponsors often influence governance, strategy and capital allocation decisions and may be important parties in borrower engagement and due diligence activities. |
| Project finance | Financing where repayment depends primarily on the cashflows generated by a specific project rather than the broader balance sheet of a corporate borrower. Common examples include infrastructure, energy, and social infrastructure projects. |
| Public credit | Transferable debt securities issued and traded through public markets, including listed corporate bonds and labelled bonds. Public credit is outside the scope of these private credit FAQs even where the issuer is privately owned. RIAA addresses those instruments through separate public credit interpretation material. |
| Quantity surveyor (QS) report | An independent or suitably qualified report on construction progress, costs incurred, remaining budget, variations and cost-to-complete. Lenders commonly use QS reports to approve staged drawdowns and identify project deterioration. They may also provide evidence relevant to delivery of agreed sustainability features. |
| Real estate debt | Lending secured by, or associated with, residential, commercial, industrial or other property assets, including investment property and development finance. Certification assessment may consider the borrower, the underlying property or development, tenants and intended end use, depending on the product’s claims and the information reasonably available. |
| Receivables financing | Lending secured against invoices, trade receivables, or expected customer payments. A common form of asset-backed lending. |
| Refinancing | Replacing an existing loan or financing arrangement with a new facility. Refinancing can create opportunities to renegotiate reporting requirements, loan terms, covenants or other aspects of the financing relationship. |
| Revenue-based financing | Financing where repayments vary according to a borrower's future revenues rather than being fixed. Often used by growing businesses with recurring revenue streams. |
| Revolving credit facility (RCF) | A facility that allows the borrower to draw, repay and redraw amounts up to an agreed limit during the facility term. Because funds can be reused for different purposes, RIAA may consider how the facility’s use and the borrower’s activities support any responsible investment or sustainability claims. |
| Secondary loan | A loan acquired from another lender after origination rather than being originated directly by the current lender. Secondary loans may involve different information availability and engagement opportunities compared with directly originated loans. |
| Secondary loan market | A market where existing loans are bought and sold between investors after origination. The information available and the level of influence available to investors may differ from direct lending arrangements. |
| Senior debt | Debt that ranks ahead in the event of insolvency, liquidation or enforcement. Senior debt is considered lower risk than junior or mezzanine debt and often provides stronger lender protections. |
| Special Purpose Vehicle (SPV) | A legal entity established for a specific financing, investment or project purpose. SPVs are commonly used in project finance, infrastructure, real estate and structured finance transactions. Assessment may require understanding the activities or assets sitting behind the SPV rather than focusing solely on the SPV itself. |
| Sponsor-backed lending | Lending provided to a company owned or controlled by a private equity sponsor or other financial sponsor. Assessment may require understanding both the borrower and the sponsor's role in governance, oversight and strategic decision-making. |
| Subscription facility | A loan provided to an investment fund that is secured primarily against investors' future capital commitments rather than the underlying portfolio assets. If repayment is required, the lender relies on the fund's ability to call committed capital from investors. Subscription facilities are commonly used to manage liquidity, bridge investment timing, or meet short-term funding requirements. Throughout the FAQs, subscription facilities are relevant because the financing is provided to an investment fund rather than directly to an operating company, project or asset. As a result, assessment may focus on the fund's investment mandate, portfolio characteristics, governance arrangements and responsible investment processes, rather than a single identifiable financed activity. |
| Sustainability Performance Target (SPT) | A measurable sustainability target agreed between a borrower and lender within a sustainability-linked loan. SPTs may relate to emissions, energy efficiency, safety, workforce, diversity or other material matters. When supporting an SLL or sustainability claim, the target should be relevant to the borrower, appropriately ambitious, time-bound, monitored and subject to external verification of performance where required by the applicable loan framework. |
| Sustainability-Linked Loan (SLL) | A private credit facility whose interest margin, fees or other economic terms vary according to the borrower’s performance against agreed Sustainability Performance Targets (SPTs). Unlike a use-of-proceeds facility, an SLL does not require proceeds to fund a specific sustainable activity. Where a facility is represented as an SLL, RIAA may consider recognised market components including material KPI selection, ambitious SPT calibration, changes to loan characteristics, reporting and external verification of performance. An SLL does not, by itself, make the borrower, financed activity or private credit strategy sustainable or impact-oriented. |
| Syndicated loan | A loan provided collectively by multiple lenders rather than a single lender. Each lender typically holds a portion of the overall facility. Syndicated structures may affect information access, decision-making processes and engagement opportunities. |
| Tenant exposure / property end use | The activities carried on by occupants of a financed property and the purpose for which the property is used or intended to be used. Tenant and end-use exposure can be relevant to ASH screening, product claims and impact assessment where those activities are material to property income, asset value or the stated financing purpose. |
| Term loan | A facility advanced for a defined term and usually repaid on an agreed schedule or at maturity. Term loans may fund general corporate purposes, acquisitions, projects or specific assets. RIAA’s assessment focus depends on the borrower, financed activity and claims rather than the term-loan structure itself. |
| Trade finance | Short-term financing supporting the purchase, sale or movement of goods and services, including receivables, inventory, guarantees and supply-chain finance. Assessment may require understanding the goods, counterparties, jurisdictions and underlying economic activities supported by the facility. |
| Transition finance | Financing intended to support a borrower or activity moving toward a lower-impact or more sustainable state. Where a private credit product makes transition claims, RIAA considers the eligibility framework, credibility of the transition plan, milestones, monitoring and consequences where progress is not achieved. |
| Transition plan | A documented plan describing how a borrower intends to transition toward a more sustainable business model, lower emissions profile or improved sustainability performance over time. Transition plans frequently appear in discussions relating to transition finance and sustainable lending strategies. |
| Underlying exposure | The assets, projects, borrowers, investments, or economic activities that are ultimately supported by a financing structure. Understanding underlying exposures is central to many private credit assessments. |
| Unitranche loan | A single loan facility combining characteristics of both senior and junior debt into one financing arrangement. Unitranche loans are common in middle-market private credit transactions. The structure itself does not alter assessment of the underlying financed activities. |
| Use-of-proceeds facility | A loan whose proceeds are restricted to financing or refinancing identified eligible projects, assets, activities or purposes. Green and social use-of-proceeds facilities commonly address four components: use of proceeds, project evaluation and selection, management of proceeds, and reporting. RIAA may consider how the restriction is documented, how proceeds are tracked and whether external review or other credible verification supports the claim. |
| Valuation | The process used to estimate the fair, market or recoverable value of a private credit exposure, collateral, property or underlying investment. Valuation underpins metrics such as NAV, LTV, concentration and impairment. Where those metrics support responsible investment, sustainability or impact claims, RIAA may consider the methodology, governance, frequency, independence, assumptions and treatment of deteriorating exposures. |
| Waiver | Permission granted by a lender allowing a borrower to temporarily breach a covenant or loan requirement without triggering enforcement action. Waivers are associated with ongoing borrower monitoring and engagement. |
| Watchlist | A formal classification of credit exposures identified as exhibiting elevated risk or early signs of deterioration, warranting enhanced monitoring or escalation. |
| Work-out | The process of managing a distressed or underperforming loan to maximise recovery and avoid or manage default. Work-outs may involve restructuring, renegotiation, enforcement, or other remedial actions. |
| Yield | The return earned by a lender from a loan or portfolio of loans, typically expressed as a percentage. Yield is an important financial characteristic of private credit investments. |
Private Credit FAQs
articles
No items found.