Why is the golden rule of financing so often ignored in structured finance?
You all know the Golden Rule of Financing, which recommends matching the maturity of the source of funds (financing) with the use of funds (investment).
Long-term assets (fixed assets such as machinery) should also be financed on a long-term basis.
👉 Why is this rule so often disregarded in structured financings, such as acquisition financings or non-investment grade financings?
Our clients are typically financed through a syndicated loan (A/B structure), a unitranche, or a (Nordic) bond with bullet maturity.
In these cases, it is standard practice to require that the tenor of working capital lines, ancillary facilities, and capex lines — as well as any additional bilateral lines — must be shorter than the bullet maturity component of the main financing.
The further consequence is that these companies must finance even long-term, highly valuable and value-stable fixed assets — such as machinery, cranes, containers, logistics facilities, etc. (even if acquired shortly before maturity) — with a shorter tenor dictated by the main financing,
far shorter than these assets would typically be financed.
And when the syndicated loan or bond is refinanced, a new arrangement fee naturally becomes due on the new total amount.
Dear CFOs, dear Treasurers,
for these far-from-rare cases, we at #LeasingPilot can offer a proven practical alternative:
👉 Finance investments in long-term assets just as long-term — through the leasing sector!
This is
🔹 more cost-effective,
🔹 significantly more so when interest barrier rules apply,
🔹 eases the refinancing cliff
🔹 and diversifies and stabilizes your corporate financing!
Let's talk!
#LBO #Treasury #PrivateEquity #CFO #CorporateFinance
Why is the golden rule of financing so often ignored in structured finance?
