Glossary of Lombard lending terms.
The vocabulary of Lombard lending, defined in plain language — so the terms behind a facility mean the same thing to everyone at the table.
Lombard lending has a precise vocabulary, and the precision matters: loan-to-value, recourse, and haircut each carry a specific meaning that shapes the terms of a facility. The definitions below are written to be read on their own — short, plain, and citable. For the instrument itself, start with what is a Lombard loan; for a fuller treatment of the advance, see how much you can borrow against shares.
Arrangement fee
A fee charged for structuring and putting a facility in place, usually a percentage of the facility amount, separate from the ongoing interest. It compensates the arranger for documentation, custody set-up, and execution.
Average daily volume (ADV)
The average quantity of a security traded over a defined period. ADV is a measure of liquidity; a position that is large relative to ADV takes longer to sell and is treated more cautiously as collateral.
Bankruptcy-remote
A custody or holding arrangement designed so that pledged assets are insulated from the insolvency of an intermediary, keeping the collateral identifiable and recoverable. It protects both the borrower’s ownership and the lender’s security.
Beneficial ownership
The economic ownership of a security — the right to its value, its dividends, and (subject to structuring) its votes — as distinct from mere legal title. In a Lombard pledge the borrower retains beneficial ownership of the pledged shares.
Collateral
Assets pledged to secure a loan, which the lender may realise if the borrower defaults. In Lombard lending the collateral is listed shares or a diversified securities portfolio.
Concentration
The degree to which a portfolio’s value depends on a single position or a small number of them. Higher concentration raises risk and generally lowers the loan-to-value a lender will advance.
Corporate action
An event initiated by a company that affects its securities — such as a dividend, rights issue, stock split, merger, or spin-off. The treatment of corporate actions on pledged shares is set out in the facility documentation.
Cross-currency loan
A loan advanced in a currency different from that of the pledged collateral. It introduces currency risk between the loan and the collateral, which is reflected in the loan-to-value and the terms.
Custody
The safekeeping of securities by a qualified custodian on behalf of their owner. In a Lombard loan the pledged assets are held in custody under arrangements that preserve the borrower’s ownership and secure the lender.
Disclosure threshold
A shareholding level above which a holder must notify the market or a regulator of its interest, and often of changes to it. Pledging shares near or above a threshold can trigger notification obligations.
Dividend
A distribution of profit paid to shareholders. Under a Lombard pledge the borrower generally continues to receive dividends on the pledged shares, subject to how the facility is structured.
Drawdown
The act of borrowing funds available under a facility. A facility may be drawn in a single amount or in stages, depending on when the borrower needs the cash.
Eligible collateral
The securities a lender will accept as security, judged on listing, liquidity, free float, volatility, and market. Not every holding qualifies; eligibility is assessed position by position.
Free float
The proportion of a company’s shares available for public trading, excluding locked-in or strategic holdings. A larger free float means deeper liquidity and generally supports a higher loan-to-value.
Haircut
The discount applied to the market value of collateral when setting the advance — the gap between what the collateral is worth and what is lent against it. A more volatile or less liquid asset attracts a larger haircut.
Loan-to-value (LTV)
The ratio of the loan amount to the market value of the pledged collateral, expressed as a percentage. It is the central number in a Lombard loan, is calibrated to the specific holdings, and is quoted as an indicative range rather than a fixed figure.
Lock-up
A contractual restriction, common after an IPO, preventing a holder from selling — and sometimes from pledging — shares for a defined period. Lock-up terms shape whether and how a facility can be secured against the shares.
Lombard loan
A loan secured by a pledge of liquid assets, most commonly listed shares or a diversified securities portfolio. The borrower retains ownership and draws cash against a fraction of the assets’ value; the term is the private-banking name for securities-backed lending.
Margin call
A demand to restore the agreed loan-to-value after a fall in the value of the collateral, met by adding collateral or repaying part of the loan. It is the mechanism that keeps a secured loan within its agreed limits.
Pledge
The grant of security over assets to a lender without transferring ownership. The pledge lets the lender realise the assets on default; until then the borrower keeps ownership and, subject to structuring, the votes and dividends.
Recourse (non-, limited-, full-)
The extent of a lender’s claim beyond the collateral if the collateral does not cover the debt. Non-recourse limits the lender to the collateral; full-recourse extends to the borrower’s other assets; limited-recourse sits between the two.
Reference rate
A published benchmark interest rate — such as SOFR, SONIA, or EURIBOR — used as the base for pricing a loan. The borrower pays the reference rate plus a spread.
Restricted stock
Shares subject to legal or contractual limits on sale or transfer, for example insider holdings or shares under a lock-up. The restrictions affect eligibility and the structuring of a facility.
Rights issue
An offer to existing shareholders to buy new shares, usually at a discount and in proportion to their holdings. As a corporate action on pledged shares, its treatment is set out in the facility documentation.
Securities-backed lending
Lending secured by a pledge of securities — the same instrument as a Lombard loan, under a more descriptive name. Also called a share-backed loan.
Spread
The margin added to the reference rate to arrive at the interest rate on a loan. The spread reflects the loan-to-value, the recourse, the tenor, and the liquidity and volatility of the collateral.
Takeover code
The rules governing the acquisition of control of a listed company, covering matters such as mandatory bids, concert parties, and disclosure. Facilities for controlling shareholders are structured to avoid triggering the applicable code.
Tenor
The term of a loan, from drawdown to final repayment. Lombard facilities are typically arranged for twelve to thirty-six months and are often renewable by agreement.
Top-up and cure
The right to remedy a breach of the loan-to-value by adding collateral or repaying part of the loan (top-up), within a defined cure period, before the lender may enforce. It gives the borrower a route to answer a margin call without a forced sale.
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