What is a ratchet?
I always here the term ratchet in banking. can someone explain what it is?
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depends what contex its used
Generally used as a degrading adjective to describe an intern's fashion choice of pleated pants or square-toed shoes.
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Something that periodically goes up, i.e. a bond with a ratcheting interest rate might have interest rate = max(LIBOR, floor rate) where the floor rate 'ratchets' up some amount each year.
another example is an ebitda covenant that 'ratchets' up some amount each year. Especially useful if the bank is extending a loan to a project with j-curve returns
also: square-toed shoes, as mentioned above
Related Reading: http://techcrunch.com/2015/11/10/squares-s-1-of-ratchets-and-unicorn-va…
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