Association of Corporate Treasurers (ACT) Qualifications Funding and Capital Markets Syllabus

Funding and Capital Markets syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Funding and Capital Markets in Association of Corporate Treasurers (ACT) Qualifications, not a summary of it.

1. 1

   Sources of Debt Finance

   4 topics

   • Bank lending products
     • Term loans, revolving credit and bilateral facilities
     • Syndicated loans and club deals
   • Debt capital markets instruments
     • Bonds, notes and private placements
     • Investment grade vs. high yield issuance
   • Asset-based and structured finance
     • Securitisation and receivables financing
     • Leasing and asset finance
   • Alternative and non-bank funding
     • Private debt and direct lending
     • Export credit and development finance
2. 2

   Loan Documentation and Terms

   4 topics

   • Facility agreement structure
     • LMA standard documentation
     • Conditions precedent and drawdown mechanics
   • Pricing and fees
     • Margin, reference rate and margin ratchets
     • Commitment, arrangement and utilisation fees
   • Covenants
     • Financial covenants and headroom
     • Information, negative and affirmative covenants
     • Covenant breach, waivers and events of default
   • Security, guarantees and ranking
     • Secured vs. unsecured lending
     • Intercreditor and subordination arrangements
3. 3

   Equity and Hybrid Capital

   4 topics

   • Equity raising routes
     • IPOs and primary listings
     • Rights issues, placings and accelerated bookbuilds
   • Hybrid instruments
     • Convertible and exchangeable bonds
     • Preference shares and perpetual securities
   • Equity-linked considerations
     • Rating and accounting treatment of hybrids
     • Dilution and conversion mechanics
   • Listing rules and investor relations basics
4. 4

   Funding Strategy and Execution

   4 topics

   • Developing a funding strategy
     • Diversification by source, maturity and currency
     • Debt maturity profile and refinancing risk
   • Issuance process and execution
     • Mandate, due diligence and documentation
     • Bookbuilding, pricing and allocation
   • Managing rating agencies and investors
     • Rating advisory and presentations
     • Ongoing disclosure and credit story
   • Liability management exercises
     • Tenders, exchanges and consent solicitations
     • Buybacks and early repayment economics

Funding and Capital Markets flashcards for Association of Corporate Treasurers (ACT) Qualifications

25 of 68 cards from the Funding and Capital Markets deck — real questions with worked answers.

1. What is a revolving credit facility (RCF) and how does it differ from a term loan?

   An RCF is a committed bank facility a borrower can draw, repay and redraw up to an agreed limit during the availability period (revolving). A term loan provides a fixed amount drawn at the outset (or in tranches) that, once repaid, cannot be redrawn and amortises/bullets to a fixed maturity. RCFs suit fluctuating working-capital needs; term loans suit fixed long-term funding.

2. Distinguish a committed facility from an uncommitted facility.

   A committed facility legally binds the lender to advance funds (subject to conditions) for an agreed period, and the borrower usually pays a commitment fee on undrawn amounts. An uncommitted facility (e.g. an overdraft) is repayable on demand and the lender has discretion whether to lend, so no commitment fee is charged.

3. What is a 'bullet' repayment versus an 'amortising' repayment profile?

   A bullet loan repays the entire principal in one lump sum at maturity, with only interest paid during the term. An amortising loan repays principal in instalments over the life of the loan, reducing the outstanding balance progressively and lowering refinancing/credit risk at maturity.

4. What is the difference between a syndicated loan and a bilateral loan?

   A bilateral loan is between one borrower and one lender. A syndicated loan is provided by a group (syndicate) of lenders on common terms under a single agreement, arranged by one or more mandated lead arrangers (MLAs) with an agent administering the facility; it spreads large exposures across multiple banks.

5. In syndication, what is the role of the 'agent' bank?

   The agent (facility agent) administers the loan on behalf of the syndicate after signing: it handles drawdowns, interest calculations, payments, communications, monitoring of covenants and waivers/consents. It is an administrative/mechanical role and generally owes no fiduciary duty to lend, distinct from the security agent who holds collateral.

6. Compare 'underwritten' versus 'best-efforts' syndication.

   In an underwritten deal the arranger(s) commit to provide the full amount and bear the risk of selling it down to other lenders (syndication risk), giving the borrower funding certainty. In a best-efforts (or 'club') deal the arranger only undertakes to use reasonable efforts to raise the funds, with no guarantee the full amount will be committed.

7. What is a bond and what are its core components?

   A bond is a tradable debt security under which the issuer borrows from investors and promises to pay periodic coupons and repay the principal (par/face value) at maturity. Core components: principal/nominal, coupon (rate and frequency), maturity date, issuer, and any embedded options or security/ranking features.

8. Define a Eurobond and contrast it with a domestic bond.

   A Eurobond is an international bond issued and traded outside the jurisdiction of the currency in which it is denominated (e.g. a USD bond issued in London), typically in bearer form and not subject to a single country's domestic registration regime. A domestic bond is issued in the issuer's home market, in local currency, under local rules.

9. What is commercial paper (CP) and what is its typical maturity?

   Commercial paper is a short-term, unsecured, discounted money-market debt instrument issued by corporates (or via a programme) to fund short-term/working-capital needs. Maturities are typically up to 364 days (often under 90 days), and it is usually rolled over, supported by back-up bank lines.

10. What is a medium-term note (MTN) programme?

    An MTN programme is a standing documentation framework allowing an issuer to make multiple debt issues ('drawdowns') of varying size, currency, maturity and structure off a single set of base documents, enabling fast, flexible, repeat issuance without renegotiating full documentation each time.

11. Explain the difference between investment-grade and high-yield (sub-investment-grade) bonds.

    Investment grade is rated BBB-/Baa3 or above, signalling lower default risk, lower yields and lighter covenant packages. High-yield (junk) is rated below BBB-/Baa3, carries higher default risk and higher yields, and typically has more extensive incurrence-based covenants to protect bondholders.

12. What is a private placement in debt capital markets?

    A private placement is a non-public sale of debt securities directly to a small number of sophisticated/institutional investors (e.g. US PP market, insurers), avoiding a public offering. It offers confidentiality, longer maturities, fixed rates and lighter ongoing disclosure, but is less liquid than public bonds.

13. Define securitisation and identify the role of the SPV.

    Securitisation pools income-generating assets (e.g. receivables, mortgages) and uses their cash flows to back tradable securities. The assets are sold to a bankruptcy-remote special purpose vehicle (SPV), which issues notes to investors, isolating the assets from the originator's insolvency so investors rely on asset cash flows rather than the originator's credit.

14. What is the difference between asset-based lending (ABL) and a traditional cash-flow loan?

    ABL sizes and secures the facility against specific assets (receivables, inventory, plant) via a borrowing base, with availability fluctuating as asset values change. A cash-flow loan is sized on the borrower's earnings/cash generation (e.g. multiples of EBITDA) and relies primarily on the business's ability to service debt.

15. What is a 'borrowing base' in asset-based finance?

    A borrowing base is the maximum amount a lender will advance, calculated by applying advance rates (haircuts) to eligible assets, e.g. 80-90% of eligible receivables plus 50% of inventory. It is recalculated periodically so available credit tracks the value of the underlying collateral.

16. Distinguish factoring from invoice discounting.

    Both fund against trade receivables. In factoring the provider purchases/manages the sales ledger and collects from debtors (often disclosed to customers). In invoice discounting the borrower retains control of its ledger and collections, and the arrangement is usually confidential; both advance a percentage of invoice value upfront.

17. What is the difference between a finance (capital) lease and an operating lease in substance?

    A finance lease transfers substantially all the risks and rewards of ownership to the lessee (effectively financed asset purchase), so the lessee recognises the asset and liability. An operating lease is more akin to rental, with the lessor retaining significant risks/rewards. (Under IFRS 16 lessees now capitalise most leases regardless.)

18. What is mezzanine finance and where does it sit in the capital structure?

    Mezzanine finance is a hybrid sitting between senior debt and equity. It is subordinated debt (often with warrants or a PIK/equity kicker) that ranks behind senior lenders but ahead of equity, carrying higher returns to compensate for greater risk; common in leveraged buyouts to bridge the funding gap.

19. What is 'PIK' (payment-in-kind) interest?

    PIK interest is not paid in cash but is added to the principal (capitalised), so the debt balance grows and the whole amount is repaid at maturity. It preserves cash for the borrower but increases total leverage and the eventual repayment burden; used in highly leveraged/mezzanine structures.

20. Name three forms of alternative or non-bank funding for corporates.

    Examples include: direct lending/private credit funds; peer-to-peer (marketplace) lending and crowdfunding; capital-markets instruments such as bonds and private placements; supply-chain/reverse factoring; and institutional infrastructure or project finance. These broaden funding sources beyond traditional bank balance sheets.

21. What is supply chain finance (reverse factoring)?

    Reverse factoring is buyer-led: a finance provider pays the buyer's approved supplier invoices early (at a discount based on the buyer's stronger credit), while the buyer pays the provider at the original/extended due date. It improves supplier liquidity and can extend the buyer's payables, but must be assessed for accounting (trade payable vs borrowing) treatment.

22. What is project finance and what is its key credit feature?

    Project finance funds a discrete project through a ring-fenced SPV, with lenders relying primarily on the project's future cash flows and assets for repayment (limited or non-recourse to sponsors). The key feature is that risk is borne by the project itself, allocated among parties via contracts, rather than the sponsor's balance sheet.

23. What are the main sections typically found in a loan facility agreement?

    Typical sections: definitions/interpretation; the facility (amount, purpose, availability); conditions precedent; interest and fees; repayment/prepayment; representations and warranties; covenants (information, financial, general); events of default; changes to parties (transfers); and boilerplate (governing law, notices). The LMA template standardises this structure.

24. What are 'conditions precedent' (CPs) in a facility agreement?

    Conditions precedent are documents and conditions the borrower must satisfy before the lender is obliged to advance funds, e.g. constitutional documents, board resolutions, legal opinions, executed security, KYC and evidence of authority. Drawdown cannot occur until CPs are met to the lender's satisfaction.

25. What does a 'representations and warranties' clause do, and how does it differ from a covenant?

    Representations and warranties are statements of fact (e.g. legal status, no litigation, accurate accounts) given by the borrower, often repeated on drawdown/interest dates; a breach can trigger default. A covenant is a promise as to future conduct (to do or not do something). Reps describe the present; covenants govern future behaviour.

See more Funding and Capital Markets flashcards →

Planning Funding and Capital Markets for Association of Corporate Treasurers (ACT) Qualifications

Funding and Capital Markets (Association of Corporate Treasurers (ACT) Qualifications) FAQ