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Paper: generic term for any short-term negotiable debt instrument, such ascommercial paper.

Participating Preference Shares: these are preference shares but they carry a right to a profit share as well as to a fixed dividend, in years when the ordinary dividend exceeds a certain level.

Participatory Relationship: where one company directly participates in the management, control or capital of another; or both are under common management, control or capital. This is the required relationship (in broad terms) for a transfer pricing provision to exist between two persons.

Payment-In-Kind (PIK) Notes: these arise where interest on a debt is not paid in cash as it falls due, but where the lender has agreed to receive funding bonds which are issued to “pay” the interest. These funding bonds themselves carry interest on the same terms as the original debt. Cash payment will not usually be made until the notes mature or are redeemed early. The unpaid interest, the PIK margin, may be added to the principal owed, either directly by rolling up the interest and incorporating it into the capital amount owed, or by satisfying the interest liability through the issue of further loan notes called PIK notes. PIK notes are recognised as payments of interest for tax purposes, but are in effect further loans, themselves bearing interest.

Perpetual Loan: loan having either no maturity date or being repayable after a very long time, sometimes recharacterised as equity capital for tax purposes. Such debt represents a very considerable credit risk to the investor, and would therefore be expected to carry a high rate of interest. See zero coupon bond.

PFI (Private Finance Initiative): it is a funding model introduced by the UK government in 1992 which aims to deliver large scale public infrastructure projects using private funding, through a public-private partnership. The PFI consortium enters into a contract to build the project and in some cases to operate the project after completion.

Preference Shares: shares where the holders have the right to receive dividends (usually fixed) before ordinary shareholders, and priority over ordinary shareholders in the event of a winding up, but no voting rights. These can have many of the characteristics of debt.

Premium: a sum paid on maturity of a debt security, over and above the principal sum, by way of reward to the investor. This is a variation on the discounted loan model, where rather than (or in addition to) interest, a return is made by the lender when the loan is terminated. Discounts and premiums are treated as interest arising over the life of the debt, but attract no withholding tax since there is no interest payment.

Primary Market: the market for the placement of new securities, such as international, domestic and foreign bond issues. Any subsequent resale or purchase is handled on thesecondary market.

Private Equity: money invested in companies which are not publicly quoted or traded, typically by PE investors acquiring controlling stakes in mature companies using predominantly debt. High debt levels mean that profits are made on disposal of the asset, so PE ventures are often sold within a couple of years.

Promissory Note: an unconditional, written and signed promise to pay a certain amount of money, either on demand or at a specified future date.