Collateral
Short definition
Collateral is the asset or right that secures debt: a charge, mortgage, assignment of receivables, cash block. Limit and spread are set off enforcement cash, not book value.
Detailed explanation
LTV, haircuts and valuation frequency set the drawable amount. AR collateral follows DSO, inventory collateral NRV and type, property an appraisal. Cash collateral creates trapped cash.
Without perfection, collateral is worthless. A share pledge can trigger change-of-control.
Why it matters for the CFO
The collateral map sets financial flexibility and the insolvency waterfall. Without a free pool, a second pack cannot be built.
How to read it
Collateral value / gross debt is coverage. Below 1 is open risk; far above 1 can be lost flexibility.
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Definitions are educational. They are not investment, credit or tax advice.