Bullet Transaction


DEFINITION of 'Bullet Transaction'

A loan in which all principal is repaid when the loan matures instead of in installments over the life of the loan. Only interest is paid during the loan term. A bullet transaction may have two or more tranches, where the different tranches might have different maturities and/or different interest rates. A company might use a bullet loan for working capital, to purchase equipment or to finance an acquisition, among other uses. Revolving loans and term loans can be structured as bullet transactions. A bullet transaction with a maturity of 15 years would be called a "15-year bullet."

BREAKING DOWN 'Bullet Transaction'

A bullet loan can be repaid by refinancing or by earning enough cash to repay the loan. A bullet transaction entails greater risk for the lender because if the company does poorly, the lender may not get back any of the principal. Bullet transactions are priced as a number of basis points (bp) over a benchmark such as U.S. Treasuries. Investors can buy certificates to invest in bullet transactions.

  1. Interest

    The charge for the privilege of borrowing money, typically expressed ...
  2. Amortization

    1. The paying off of debt in regular installments over a period ...
  3. Amortization Schedule

    A complete schedule of periodic blended loan payments, showing ...
  4. Refinance

    1. When a business or person revises a payment schedule for repaying ...
  5. Negative Amortization

    An increase in the principal balance of a loan caused by making ...
  6. Accrued Interest

    1. A term used to describe an accrual accounting method when ...
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