Credit crunch? Credit default swaps? Honeymoon loans? NINJA loans? Negative pledge? The subprime crisis is upon us and investors are confronted with jargon designed to baffle and keep them in the dark.

Here is my glossary of key terms you'll need to know to keep ahead of the game:

arranger - A financial institution that arranges, co-ordinates and puts together a debt package for a borrower involving different types of debt and/or a range of different lenders.
Automatic reset mortgage - A mortgage which starts with a lower "teaser" rate and then automatically resets.
Bonds - debt obligations.
Bond/monoline insurer - An insurance company that provides guarantees of specified debt obligations of issuers in the event that the issuer defaults. What happens is that the issuer will often go to the monoline insurer to either boost the rating of one of their debt issues or to ensure that the debt issue doesn't get downgraded. Monoline insurers are supposed to make their money by using their good credit rating to justify the charging of a premium in return for the guaranteeing of the relevant debt issue. They are called monoline insurers because they service only the capital market industry.

Capital adequacy requirements - The regulatory requirement for banks and other deposit taking institutions to have a minimum liquidity levels. The reason for that is so that governments can ensure that the banks have sufficient capital to maintain losses when loans go bad.
CDO or collateralized debt obligation - Bundles of bonds, loans and asset-backed debt securities that are divided into sections, or tranches, including the high-risk subprime mortgages. While the aim of the CDOs is to spread the risk, commentators have described the process as being like putting horse dung and rubbish into a grinder to make sausage.
Covenant lite - Where the terms on which the debt is provided to a borrower contain relatively few restrictions on their operations. Usually done when the borrower is low risk or when the interest rate carries a premium to cover the higher risk to the bank.
Credit crunch - Generally speaking, this occurs when lenders become wary of lending funds to borrowers, thereby making it more expensive for them to raise money. A more extreme version of this is when banks have insufficient capital to meet the demand for loans which forces them to ration credit. This typically happens when the bank runs into difficulty raising money through the interbank and capital markets.
Credit default swap - Involving three parties. What happens is that if a borrower defaults, the third party purchases the debt, pays the remaining interest to the lender. So the risk of a bad loan is transferred from the lender to the third party and the third party charges a premium.
Credit rating agency - An entity that conducts formal assessments of the credit worthiness of corporate entities and their debt obligations. They make their decision based on, among other things, the history of borrowing and repayment, the availability of assets, the extent of the liabilities and the priority of various debt obligations. These ratings are important for investors, lenders and contractual counter parties who can't conduct an independent detailed assessment of the entity's liquidity, solvency and general credit worthiness.
Gearing - A company's level of long term debt compared to its equity. It's always expressed as a percentage. Companies with high gearing, that is to say more long term liabilities relative to their equity or earnings, are considered "speculative".
Hedge funds - An investment vehicle that uses hedging techniques in the course of its investment strategy. Hedge fund strategies vary enormously and may include arbitrage, short selling, entering into futures, swaps and other derivative contracts, trade options or bonds. These might be very complex and restricted to sophisticated investors.
Honeymoon loans - A loan which has good terms, like a lower or fixed interest rate, for a limited time or honeymoon period during the term of the loan.
Hung bridges - Where a lender makes a risky and short-term bridging loan to a borrower to help fund an acquisition. The borrower is neither able nor compelled to to refinance the bridging loan in the optimal time frame envisaged by the lender.
Issuer - The person who issues a bond or note. Code for borrower.
LBO, or leveraged buyout - The acquisition of a company using a significant amount of debt to make the purchase.
Leveraged funds - An investment vehicle that uses a mixture of debt and equity, with investors putting up the money, to make investments. Debt is cheaper than equity so by using debt, the investment vehicle delivers a bigger return to investors.Low doc/no doc loans - Loans that require limited levels of disclosure by the borrower. The borrower is low risk.
Negative pledge - A promise by the borrower to a lender not to provide security to other lenders.
NINJA loans - A loan given to a person with No Income, No Job and No Assets.
Originator - A person that introduces a borrower to a lender and assists the borrower in perparing a loan application and satisfying all the other pre-conditions that are required before the loan is extended. in other words, the originator helps set up the deal and receives a commission from the lender.
Securitisation - Where you create and market a financial instrument by aggregating or combining other financial instruments.
Sovereign wealth fund - A pool of money derived from a country's reserves that are set aside for investment purposes. The money might often come from oil royalties and revenues. As opposed to private funds, they are state owned and managed. Well known sovereign wealth funds include the Abu Dhabi Investment Authority, China Investment Corporation and the Government Pension Fund of Norway.
Special Purpose Vehicle - Usually a subsidiary company whose operations are limited to the acquisition and financing of specific assets. It usually has a legal structure that makes it secure even if the parent company goes bankrupt. Alternatively, the parent is supposed to be insulated if the special purpose vehicle goes bankrupt. These vehicles are often called "off balance sheet entities" and their accounting treatment allows them to hide the debt position of a corporate group. Think Enron.
Sub prime - A borrower who has a limited or tarnished credit history.
Tranche - A piece, portion or slice of a deal or structured financing.
Underwriter - The underwrite, in essence, agrees to make the loan irrespective of whtehr other financial institutions are willing to lend to the borrower. The underwriter assumes the risk that other don't want.