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Debenture: this generally refers to a medium- to long-term debt agreement where the borrower is a company. Typically, a debenture will set out the terms of the loan, the amount borrowed, repayment terms, interest, charges securing the loan and so on, including the right of a lender to appoint a receiver should the borrower default. Debentures are usually secured by charges on the company’s property, but do not have to be. It is common for the terms of a loan to be in a separate loan agreement document, cross referred to the debenture document which constitutes the security for the loan.

Debt Cap: in the same way that a lender will place a maximum borrowing limit on a facility, HMRC often seeks to include a covenant in a thin cap agreement which sets a limit on the amount of debt which falls within the agreement. This is often referred to as a “total debt cap”. Interest on any “excessive” debt will be disallowable. See Worldwide debt cap.

Debt/Equity Ratio: the ratio of interest-bearing debt to shareholders’ funds; a measure used in bank and HMRC covenants, particularly for financial businesses, and a useful indicator of the soundness of the business’s finances. See INTM578010.

Debt/Equity Swap: exchange of debt for equity, often part of a company reconstruction or takeover.

Debt instrument: a legal document evidencing a debt, such as commercial paper or abond.

Debt capital: funding through loans, such as debentures and bonds.

Deep Discount Bond: a bond where the amount payable on maturity of the debt exceeds what was paid upon its issue. The debt is issued at less than face value, so that when it is redeemed at face value, the lender receives a return over and above the principal originally advanced. The return is taxed as income, spread over the life of the bond.

Derivative Financial Instrument: a financial instrument whose value is dependent on, or derived from, the value of some underlying asset. The most common types are forwards, futures, options and notional principal contracts such as swaps, caps floors, and collars. The province of CTIAA Financial Products and best learned about via the Corporate Finance Manual - see CFM50010.

Depreciation: this refers to the writing off of the cost of an asset over its economic life, in accordance with recognised accounting principles. It is a non-cash item, often added back in measuring the profitability of a company against its debt obligations. See INTM577070.

Discount: the difference between the issue price of a bond or other loan relationship, and its (higher) maturity or face value. Issuing a bond at a discount is a way of rewarding the investor, either instead of or as well as paying interest.

Disinter-Mediation: direct borrowing by companies, government agencies, etc, from investors, rather than through the intermediation of banks between borrowers and lenders. This eliminates banks’ traditional interest “turn” on the transactions, but creates scope for fee income in managing new bond issues to the market.

Direct Quotation: the price of each unit of foreign currency expressed in terms of the home currency, which will be sterling in the UK, e.g. £0.6960=$1. Compare withindirect quotation.

Double Dipping: tax relief in more than one country on the same deductions (often on trading losses) because of differences in tax rules. See Arbitrage.

Downstream Loan: loan from a parent company to its subsidiary.

Drawdowns: the practice of the borrower actually taking the money made available by the lender. A loan agreement will usually specify when instalments up to an agreed maximum can be drawn down and in what amounts.

Due Diligence: this process takes place before a transaction such as a corporate acquisition is completed. The purchaser or financier seeks to verify their understanding of the target’s finances and potential. The individual elements of due diligence may include commercial due diligence (markets, product and customers), a market report (marketing study), an accountant’s report (trading record, net asset and taxation position) and legal due diligence (implications of litigation, title to assets and intellectual property issues).