Vendor Take Back (VTB)
Definition - What does Vendor Take Back (VTB) mean?
Vendor take backs are either unsecured or secured but subordinated to senior debt. This makes the debt more risky, which allows it to command a higher interest rate or other premium terms such as equity kickers. While terms can vary, a typical vendor take back will pay interest only for a period of time with principal repayments being made out of the company's free cash flow before any dividends are paid.
Divestopedia explains Vendor Take Back (VTB)
Sellers must scrutinize vendor take backs closely to ensure the interest rate is high enough to match with the debt's risk. Sophisticated buyers may pay a lower interest rate that may be higher than the going market rate, but could be too low given the company's unique risk profile and volatility of its future cash flow.
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