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Structured Financing – Mezzanine and Bond Leverage

Structured financing is a complex financial instrument offered to mostly large borrowers who need a vast amount of capital or other source of income and who would need a series of discrete transactions.  Since a simple loan cannot offer that, a more complex, and inherently risky, structured finance option may be the right answer.

Products for this type of financing can include syndicated loans, collateralized mortgage obligations, collateralized bond obligations (CBO’s),  debt obligations (CDO’s), credit default swaps (CDS’s) and hybrid securities. 

When it comes to leveraged transactions, the ratio of debt capital to equity capital is referred to. In leveraged financing, this ratio is unusually high and results in the interest rate on the debt also being high.

Mezzanine capital is any subordinated debt or preferred equity instrument that has claim on the company’s assets, senior only to that of the common shares.  They can be structured either as debt or preferred stock.

Needless to say, when this becomes a necessary element in a company’s success, an Attorney who is knowledgeable in what options may be offered becomes critical.

Joshua Irvine