Professional terminology with a certain "esprit" that is often heard in the corporate finance field. Presumably, numerous witty industry terms have been created over time by lawyers specializing in international transactions and investment bankers. Today, I would like to introduce one of my personal favorites: the "Equity Kicker."

■What is an Equity Kicker?
　An equity kicker is one of the financial mechanisms primarily used in leveraged buyout (LBO) transactions and other deals, referring to an option that allows creditors to obtain rights related to equity (share capital) such as company shares in the future. This mechanism provides creditors with opportunities to earn additional returns, while also offering borrowers the possibility to design financing terms more rationally.
 

Equity kickers are often established as part of loan agreements. In typical cases, creditors have the right to receive shares of the borrower's company or securities convertible to shares in lieu of a portion of the loan or interest, under certain conditions. By exercising this right, when a financed company succeeds in the future, creditors can enjoy a portion of the profits (capital gains) accompanying the company's value appreciation, in addition to ordinary interest income.

　For example, LBO loan lenders set loan interest rates slightly lower than usual and acquire warrants or subordinated bonds with conversion conditions (kickers). Then, when the buyout fund's portfolio company eventually faces a sale (exit), these kickers are converted to equity. This results in partial dilution of existing shareholders' (buyout fund's) holdings, with the corresponding economic value transferred to the LBO loan lenders.
 

■The Story of "Kicking" Away Part of the Equity Side's Share
Corporate acquisitions through LBOs are mechanisms where free cash flows generated from target companies are obtained by creditors (LBO loan lenders) and buyout funds (equity investors). Naturally, creditors have priority rights to cash flows, while equity investors are subordinated.

■It's unclear who coined the term, but it probably wasn't fund people.
　Whether this was first named "kicker" by international lawyers, investment bankers, or LBO loan lenders is unknown. However, it was certainly not coined by someone in the buyout fund industry. Buyout funds, which resell companies acquired with leverage from loan lenders' capital to achieve high returns, are undoubtedly the ultimate protagonists of LBOs. This naming convention of "we're going to kick away a little bit of the protagonist's share" has a nuance of "taking a little jab" at the main player. I don't dislike such playful wit that carries this kind of clever humor.