“Hair Cut”: verb phrase, in business and finance, to receive less than the amount due or expected on a financial obligation or investment (i.e. application of a discount to an amount owed or return anticipated).
Usage Note: Sharing some similarities with the gem of a phrase “Take a Hit”, this well-worn financial idiom is more versatile, and more widely used. When you think about it, the haircut is a strange behavior unique to the human animal. Humans share 97% (or whatever) of our DNA with chimpanzees and although you’ll see a lot of people acting like monkeys, particularly in finance, you’ll never see monkeys getting a haircut. But we humans just love getting our haircut. Something very relaxing and rejuvenating about someone tugging on your mane and snipping at it in tiny increments with a sharp pair of scissors.
Unfortunately, as is often the case with financial lingo, “haircut” has become an overused substitute for “discount” and as such has made its way into all forms of conversation where it really has no business being. Finance geeks throw the term around for anything from a sale at Barney’s to short-changing a friend when repaying for last weekend’s bender.
Although bad-ass money-men have no problem spending several hundred dollars at a tony salon, this financial term has nothing to do with preening the coiffure. Unlike his me-time at the barber, on the financial battlefields the alpha-male banker-type always wants to give someone else a haircut. He’ll never be on the receiving end if he can help it. That’s because “haircut” is a euphemism for getting screwed over. Since finance is often a zero-sum game, if someone’s getting a haircut, someone’s giving it. The yin-yang nature of this term makes it a go-to in the savvy speaker’s word kit.
Just as the barber’s handiwork comes in a pleasing variety (such as bouffant, butch, bowl, caesar, high top fade, and mullet) financial haircuts come in many forms too: a haircut to the EBITDA multiple a PE boss was hoping to fetch for a portfolio company at auction; a haircut to a “base case” forecast; or taking a haircut as a bondholder when restructuring debt in a bankruptcy, are just a few examples.
One of the great haircuts in recent times was the one GM bondholders took when the US government bailed out the automaker, forced it through bankruptcy, and demanded that bondholders take a back seat to unions and pensioners. In the process, Harvey Golub of Miller Buckfire says, the Obama administration “violated every bankruptcy principle known to man”. In the end, it’s estimated that GM bondholders got about 10 cents on the dollar of what they were owed. That’s a 90% hack job and as far as haircuts go, they got one “high and tight”.