non-recourse debt

(noun)

a secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defaults, the lender/issuer can seize the collateral, but the lender's recovery is limited to the collateral.

Related Terms

Examples of non-recourse debt in the following topics:

  • Current Obligations Expected to Be Refinanced

    • Refinancing may refer to the replacement of an existing debt obligation with a debt obligation under different terms.
    • If the replacement of debt occurs under financial distress, refinancing might be referred to as debt restructuring.
    • A loan or other type of debt can be refinanced for various reasons:
    • In some jurisdictions, refinanced mortgage loans are considered recourse debt, meaning that the borrower is liable in case of default, while un-refinanced mortgages are non-recourse debt.
    • Refinanced debt must be finalized and the new loan terms approved before reporting it and replacing it for the old debt in the liability section.

  • Valuing Notes Receivable

    • Notes Receivable represents claims for which formal instruments of credit are issued as evidence of debt, such as a promissory note.
    • Notes receivable are considered current assets if they are to be paid within 1 year and non-current if they are expected to be paid after one year.
    • The amount of the bad debt provision can be computed in two ways:
    • by reviewing each individual debt and deciding whether it is doubtful (a specific provision)
    • The entry would consist of debiting a bad debt expense account and crediting the respective accounts receivable in the sales ledger.

  • Classifying Receivables

    • On a company's balance sheet, receivables can be classified as accounts receivables or trade debtors, bills receivable, and other receivables (loans, settlement amounts due for non-current asset sales, rent receivables, term deposits).
    • Other receivables can be divided according to whether they are expected to be received within the current accounting period or 12 months (current receivables), or received greater than 12 months (non-current receivables) .
    • Not all accounts receivables will be paid, and an allowance has to be made for bad debts.
    • The allowance for bad debts can be calculated either as the percentage of net credit sales or by the ageing method of estimating bad debts.

  • Activities of the Business: Financing, Investing, and Operating

    • Activities of the business include operating activities and non-operating activities such as investing activities, and financing activities.
    • In addition to operating activities businesses engage in non-operating activities.
    • Non-operating activities are not related to the day-to-day, ongoing operations of a business.
    • Non-operating cash flows include borrowings, the issuance or purchase of stock, asset sales, dividend payments, and other investment activity.
    • As with operating activities GAAP principles dictate how non-operating items are classified on the statement of cash flows.

  • Components of a Note

    • Notes Receivable represents claims for which formal instruments of credit are issued as evidence of debt, such as a promissory note.
    • Notes Receivable represents claims for which formal instruments of credit are issued as evidence of debt, such as a promissory note.
    • Notes receivable are considered current assets if they are to be paid within 1 year and non-current if they are expected to be paid after one year.

  • Additional Factors to Consider

    • Consideration of financial strength entails a number of ratios, including a company's total debt to assets, long-term debt to equity, current and quick ratios, interest coverage, and operating cycle.
    • Total debt to assets: total debt/total assets or total liability/total assets
    • Intangible factors such as goodwill and non-compete agreements are important as well.

  • Introduction to the Statement of Cash Flows

    • Any non-cash activities are usually reported in footnotes.
    • These non-cash transactions include depreciation or write-offs on bad debts or credit losses.
    • Investing activities include all transactions related to the acquisition or disposal of non-current assets.
    • Non-current assets is another term for fixed assets, which includes all property that cannot be easily converted to cash.
    • Financing activities includes all transactions related to changes in the amount of a business's equity available for sale or the amount of the business's outstanding debt, with the exception of interest payments.

  • Types of Receivables

    • Receivables can be classified as accounts receivables, notes receivable and other receivables ( loans, settlement amounts due for non-current asset sales, rent receivable, term deposits).
    • Other receivables can be divided according to whether they are expected to be received within the current accounting period or 12 months (current receivables), or received greater than 12 months ( non-current receivables).
    • Notes receivable are amounts owed to the company by customers or others who have signed formal promissory notes in acknowledgment of their debts.

  • Types of Cash

    • Types of cash include currency, funds in bank accounts, and non-risky financial instruments that are readily convertible to cash.
    • So if a corporate bond matures within three months, but the company that issued it may not be able to settle the debt, one would not be able to include that as a cash equivalent.

  • Characteristics of Intangible Assets

    • Intangible assets are identifiable non-monetary assets that cannot be seen, touched, or physically measured.
    • Intangible assets are defined as identifiable non-monetary assets that cannot be seen, touched or physically measured, and are created through time and effort.
    • Company $X$ is a car dealership with assets consisting of 10 cars valued at $100,000, an office valued at $150,000, and long-term debt valued at $25,000.