Project Finance Glossary

Comprehensive dictionary of 12,816 terms covering project finance, banking, investment, and capital markets terminology.

56 terms starting with A

AAA rating

Credit

The highest credit rating assigned by major credit rating agencies such as Standard & Poor's, Moody's, and Fitch to debt securities and borrowers. This rating indicates the lowest level of credit risk and the highest probability of timely repayment of principal and interest. Securities with AAA ratings typically offer lower yields due to their superior creditworthiness and are favored by institutional investors seeking capital preservation.

abandon a claim

Insurance

The voluntary relinquishment or surrender of a legal right, interest, or claim without transferring it to another party. In insurance contexts, this refers to the insured party's decision to give up their rights to damaged or lost property in exchange for a total loss settlement. The abandonment must be communicated clearly and may have legal and tax implications for the claiming party.

abandoned assets

Accounting

Property or assets that have been voluntarily relinquished by the owner without transferring ownership to another party, often due to the cost of maintenance exceeding the asset's value. In accounting, abandoned assets are typically written off the balance sheet and may generate a tax loss. Common examples include obsolete equipment, depleted natural resources, or properties with environmental liabilities.

abandonment

Project Finance

The act of giving up possession or ownership rights over property, a project, or a legal claim. In project finance, abandonment refers to the sponsor's decision to cease project operations, often triggering specific provisions in loan agreements. In insurance law, abandonment allows the insured to transfer all rights in the insured property to the insurer in exchange for a total loss payment.

abandonment fee

Project Finance

A charge imposed when a party withdraws from a transaction, contract, or project before its completion. In project finance, this fee compensates lenders and other stakeholders for costs incurred due to early project termination. The fee structure is typically defined in the project agreements and may include both fixed charges and variable components based on the project stage at abandonment.

abatement

Tax

A reduction, decrease, or suspension of a payment, charge, or obligation. In taxation, abatement refers to the reduction or elimination of a tax liability through legal provisions or administrative decisions. In real estate, rent abatement allows tenants to pay reduced rent during periods when the property is not fully usable. Environmental abatement involves reducing pollution or hazardous materials.

ability to pay

Credit

A borrower's financial capacity to meet debt obligations, including principal and interest payments, as determined by income, assets, and existing liabilities. Lenders assess ability to pay through debt service coverage ratios, cash flow analysis, and credit scoring. In taxation, this principle suggests that tax burdens should be distributed according to taxpayers' financial capacity rather than benefits received.

above par

Securities

A term describing a security trading at a price higher than its face value or nominal value. Bonds typically trade above par when their coupon rate exceeds current market interest rates, making them more attractive to investors. The premium represents the present value of the excess coupon payments over comparable market yields. Above par pricing is also called trading at a premium.

absolute advantage

Economics

An economic concept describing a country's or firm's ability to produce a good or service more efficiently than another, using fewer resources or at lower cost. Introduced by Adam Smith, this theory suggests that nations should specialize in producing goods where they have absolute advantage and trade for other goods. It differs from comparative advantage, which focuses on opportunity costs.

absolute assignment

Legal

The complete and unconditional transfer of all rights, title, and interest in property, a contract, or an insurance policy from one party to another. Unlike a collateral assignment, which is temporary and for security purposes, an absolute assignment permanently transfers ownership. The assignor retains no rights after the assignment, and the assignee assumes full control and benefits.

absolute guarantee

Credit

An unconditional commitment by a guarantor to fulfill an obligation if the primary obligor fails to perform, without requiring the creditor to first pursue remedies against the primary debtor. This differs from a conditional guarantee where the guarantor's liability is contingent upon specific events. Absolute guarantees provide stronger security to lenders and are common in project finance structures.

absolute liability

Legal

A legal doctrine holding a party responsible for damages or injuries regardless of fault, negligence, or intent. Also known as strict liability, this principle applies to inherently dangerous activities, product liability, and certain environmental regulations. In insurance, absolute liability coverage protects against claims where the insured is held liable without proof of negligence.

absorption costing

Accounting

A managerial accounting method that allocates all manufacturing costs, including fixed overhead, to products. Under this approach, each unit of production absorbs a portion of fixed costs such as rent, depreciation, and administrative expenses. This method is required for external financial reporting under GAAP and provides a comprehensive view of product profitability but may distort decision-making during periods of varying production volumes.

accelerated depreciation

Accounting

A depreciation method that allows for larger deductions in the early years of an asset's useful life, with decreasing amounts in later years. Common methods include double declining balance and sum-of-the-years' digits. This approach provides tax benefits by deferring tax liability and improving early cash flows, though it does not affect the total depreciation over the asset's life.

acceleration clause

Contracts

A contractual provision that allows a lender to demand immediate repayment of the entire outstanding loan balance upon the occurrence of specified events, such as payment default, breach of covenants, or borrower insolvency. This clause protects lenders by enabling them to recover funds before the borrower's financial condition deteriorates further. Acceleration clauses are standard in most loan agreements and bond indentures.

acceptance

Banking

In contract law, the unconditional agreement to the terms of an offer, creating a binding contract. In banking and trade finance, acceptance refers to a drawee's agreement to pay a bill of exchange or draft at maturity by signing it. A banker's acceptance is a time draft guaranteed by a bank, creating a negotiable money market instrument widely used in international trade financing.

acceptance credit

Banking

A short-term credit facility where a bank agrees to accept bills of exchange drawn by its customer, thereby adding its creditworthiness to the instrument. The bank's acceptance makes the bill more marketable and allows the customer to obtain financing at lower rates. This facility is commonly used in international trade to bridge the gap between shipment and payment receipt.

accounts payable

Accounting

Short-term liabilities representing amounts owed by a company to suppliers, vendors, and creditors for goods and services received but not yet paid. Recorded on the balance sheet as current liabilities, accounts payable are typically due within 30 to 90 days. Effective management of payables is crucial for maintaining supplier relationships and optimizing working capital.

accounts receivable

Accounting

Money owed to a company by customers for goods or services delivered on credit. Classified as current assets on the balance sheet, receivables represent future cash inflows expected within the normal operating cycle. Companies monitor accounts receivable aging, turnover ratios, and collection periods to assess credit risk and liquidity. Receivables can be used as collateral for financing or sold through factoring.

accrual accounting

Accounting

An accounting method that records revenues when earned and expenses when incurred, regardless of when cash is exchanged. This approach provides a more accurate picture of a company's financial position by matching revenues with related expenses in the same period. Required by GAAP and IFRS for most businesses, accrual accounting differs from cash basis accounting, which records transactions only when cash changes hands.

accrued interest

Securities

Interest that has been earned or incurred but not yet paid or received. For bondholders, accrued interest represents interest accumulated since the last coupon payment date. When bonds are traded between payment dates, the buyer pays the seller the accrued interest in addition to the bond price. This ensures the seller receives compensation for holding the bond during that period.

acquisition

Corporate

The purchase of one company by another, resulting in the acquired company becoming part of the acquirer's organization. Acquisitions can be friendly, with mutual agreement, or hostile, against target management's wishes. They may be structured as asset purchases or stock purchases, each with different legal, tax, and accounting implications. Acquisitions are a primary method of corporate growth and market expansion.

ad valorem tax

Tax

A tax calculated as a percentage of the value of property, goods, or transactions rather than a fixed amount. Common examples include property taxes based on real estate values, import duties based on merchandise value, and value-added taxes. Ad valorem taxes automatically adjust with price changes, generating higher revenues during inflation while imposing greater burdens as values increase.

adjustable-rate mortgage

Real Estate

A mortgage loan with an interest rate that changes periodically based on movements in a reference index, such as LIBOR or the prime rate. ARMs typically offer lower initial rates than fixed-rate mortgages but expose borrowers to interest rate risk. Rate adjustments are usually subject to caps limiting how much rates can increase per period and over the loan's lifetime.

agency costs

Corporate

Expenses arising from conflicts of interest between principals (shareholders) and agents (management) in a corporation. These costs include monitoring expenses to oversee management behavior, bonding costs incurred by agents to demonstrate alignment with principal interests, and residual losses from suboptimal decisions. Agency theory explains how ownership structures and incentive mechanisms can minimize these costs.

amortization

Accounting

The gradual reduction of a debt through regular payments of principal and interest, or the systematic allocation of an intangible asset's cost over its useful life. In loan contexts, amortization schedules show how each payment is divided between interest and principal reduction. For accounting purposes, amortization applies to intangible assets like patents, while depreciation applies to tangible assets.

annual percentage rate (APR)

Credit

The annualized cost of borrowing expressed as a percentage, including interest and certain fees over the loan term. APR provides a standardized measure for comparing different loan products and credit offers. Regulations require lenders to disclose APR to consumers, helping borrowers understand the true cost of credit. APR may differ from the nominal interest rate due to compounding and fee inclusion.

arbitrage

Investment

The simultaneous purchase and sale of an asset in different markets to profit from price discrepancies. Pure arbitrage involves risk-free profit from market inefficiencies, though such opportunities are rare and short-lived in efficient markets. Types include spatial arbitrage (across locations), temporal arbitrage (across time), and statistical arbitrage (based on quantitative models). Arbitrageurs help markets achieve price equilibrium.

asset-backed securities (ABS)

Capital Markets

Financial instruments backed by pools of assets such as auto loans, credit card receivables, or equipment leases. Through securitization, these assets are packaged and sold to investors, providing issuers with liquidity and risk transfer. ABS are structured with tranches offering different risk-return profiles, with senior tranches receiving payment priority. Credit enhancement techniques improve the securities' credit quality.

audit

Accounting

An independent examination of financial statements, records, and operations to verify accuracy and compliance with accounting standards and regulations. External audits are conducted by certified public accountants and provide assurance to stakeholders. Internal audits assess operational efficiency and internal controls. Audit opinions range from unqualified (clean) to adverse, indicating the reliability of financial reporting.

asset allocation

Investment

The strategic distribution of investment funds across different asset classes such as stocks, bonds, real estate, and cash equivalents to optimize risk-adjusted returns based on an investor's goals, time horizon, and risk tolerance. Modern portfolio theory suggests that proper asset allocation can reduce portfolio volatility while maintaining expected returns through diversification benefits.

asset-liability management (ALM)

Risk

A risk management framework used by financial institutions to manage mismatches between assets and liabilities in terms of maturity, interest rate sensitivity, and currency exposure. ALM aims to ensure that institutions can meet their obligations while maximizing profitability. Key techniques include gap analysis, duration matching, and stress testing under various economic scenarios.

assignment

Legal

The legal transfer of rights, interests, or benefits from one party (assignor) to another (assignee). In finance, assignments commonly involve transferring loan receivables, insurance policies, or contractual rights. The validity of an assignment may require notice to obligors and compliance with specific contractual or legal requirements. Assignments can be absolute or for security purposes only.

at-the-money (ATM)

Derivatives

An options term describing a situation where the strike price equals or is very close to the current market price of the underlying asset. ATM options have the highest time value component and are most sensitive to changes in implied volatility. They represent a neutral position where the option holder has equal probability of the option expiring in-the-money or out-of-the-money.

authorized capital

Corporate

The maximum amount of share capital that a company is legally permitted to issue as stated in its articles of incorporation or charter. Also known as authorized shares or registered capital, this represents the upper limit of shares available for issuance. Companies may issue less than authorized capital, with the difference between authorized and issued capital available for future offerings or employee stock options.

average cost method

Accounting

An inventory valuation method that calculates the cost of goods sold and ending inventory based on the weighted average cost of all units available for sale during a period. This method smooths out price fluctuations and is simpler to apply than FIFO or LIFO methods. It is commonly used for homogeneous products and is accepted under both GAAP and IFRS accounting standards.