STRUCTURED FINANCE

Structured finance is best defined as financially engineering the proper blend of debt, equity, synthetic, derivative and hybrid capital in order to resolve particular transactional needs that cannot readily be met by conventional senior financing.

Structured financing allows for an engineered design and pricing of situation-specific financing instruments.

Representative examples of typical situations that call for structured finance solutions include the following:

• Working around balance sheet or capital constraints
• Shifting a higher percentage of the capital structure down in the leverage curve
• Attaining greater amounts of leverage at a lower blended cost of capital
• Adding value and increased leverage to buyouts, yield-plays, recapitalizations, repositioning, stress-induced financial restructuring, and arbitrage-driven hybrid debt or synthetic funding
• Shifting risk and better managing control at both the project and entity levels
• Releasing trapped equity in single assets or portfolios
• Conversion of illiquid assets into tradable securities

While many would choose to define structured finance in narrow terms it is rather the limitless ability to engineer hybrid, synthetic or derivative instruments that makes the engineered solution provided by structured finance so valuable.

Typical structured finance instruments include the following:

• Senior and Junior Mezzanine Debt
• Straight, Convertible and Participating Second Mortgages
• Preferred Equity Structures
• Bond Placements, Tax Credits and other Municipal Finance Alternatives
• Collateralized Mortgage Pools, Collateralized Debt Obligations and other Credit Derivatives
• Index or Currency Linked Strips
• Swaps, Options, Caps, Collars, Swaptions, Captions, etc
• Credit Enhancement, Financial Guaranties, Standby Commitments; Forward Commitments

Understanding how to maximize all levels of the capital structure through the use of structured finance techniques when developing the capital formation plan on your next transaction will help you create a much more effective and efficient execution.

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