We're 100% Structured Finance specialists
We can help secure 100% Structured Finance for property development in the UK by using a mix of Senior Debt Finance, Mezzanine Finance and/or Equity Finance to cover the total cost of the project.
Our 100% Structured Finance service
- Market-leading 100% Structured Finance up to £250m
- Experienced developers only
- Flexible and tailored finance for each project
- Allows for more complex projects with limited access to senior debt
- Access to larger sums of money than traditional lending methods
- Residential development
- Residential refurbishments
The comprehensive guide to 100% Structured Finance
Structured finance is a sophisticated development finance tool used by developers, businesses and investors to manage risks and optimise their capital structures. One notable approach within structured finance is 100% Structured Finance, which offers unique characteristics and benefits.
This guide aims to provide a comprehensive understanding of 100% Structured Finance, including its definition, features, working mechanism, target users, optimal scenarios, and the advantages it offers.
Contents
What is 100% Structured Finance?
100% Structured Finance is a financial strategy that involves the complete securitisation of an asset or group of assets. It is designed to enhance liquidity, mitigate risk, and maximise the value of assets by transferring them into a separate legal entity or special purpose vehicle (SPV).
This SPV issues securities backed by the underlying assets, providing investors with exposure to the cash flows generated by those assets.
Characteristics and features
Asset Transfer: In 100% Structured Finance, the assets are fully transferred to the SPV, which assumes ownership and control of the assets.
Special Purpose Vehicle (SPV): An independent legal entity, typically a trust, is created to hold the assets and issue securities against them.
Securitisation: The assets are pooled together and transformed into tradable securities, such as bonds or asset-backed securities (ABS).
Cash Flow Generation: The cash flows generated by the assets serve as collateral for the issued securities, providing investors with income streams.
Credit Enhancement: Structured finance transactions often incorporate credit enhancement mechanisms, such as over-collateralisation or third-party guarantees, to increase the creditworthiness of the securities.
Complexity: 100% Structured Finance involves complex legal, accounting, and financial structuring, requiring the involvement of various professionals, including lawyers, accountants, and investment bankers.
How does 100% Structured Finance work?
The process of implementing 100% Structured Finance can be summarised in the following steps:
Asset Identification: Select the pool of assets to be securitised, which can include various asset classes like loans, leases, mortgages, or receivables.
SPV Formation: Establish a separate legal entity, the SPV, to hold the assets and issue securities.
Asset Transfer: Transfer ownership of the assets from the originator (the entity selling the assets) to the SPV.
Securitisation: The SPV transforms the assets into securities, typically rated by credit rating agencies based on their credit quality.
Securities Offering: The SPV sells the securities to investors in the capital markets, generating funds for the originator.
Cash Flow Distribution: The cash flows generated by the underlying assets are distributed to investors in accordance with the terms of the securities.
Servicing and Administration: The SPV or a designated servicer manages the assets, collects cash flows, and performs administrative tasks.
Who uses 100% Structured Finance?
100% Structured Finance is commonly utilised by various entities, including:
Financial Institutions: Banks, insurance companies, and other financial institutions often use structured finance techniques to optimise their balance sheets, manage risk, and generate additional revenue streams.
Corporations: Large corporations may employ structured finance to securitise their assets, such as accounts receivable or leases, to improve liquidity and reduce financing costs.
Government Entities: Governments can use structured finance to finance public projects, such as toll roads or infrastructure, by securitising future revenue streams.
Institutional Investors: Institutional investors, such as pension funds or hedge funds, may invest in structured finance securities to diversify their portfolios and seek attractive risk-adjusted returns.
When can 100% Structured Finance be used?
100% Structured Finance can be employed in various scenarios, including:
Asset Monetisation: When an entity wants to unlock value from illiquid assets and access additional funding by transforming them into tradable securities.
Risk Mitigation: To transfer risks associated with specific assets to investors, thereby reducing the concentration of risk on the originator's balance sheet.
Capital Optimisation: When an entity seeks to optimise its capital structure by leveraging the value of its assets, potentially improving credit ratings and reducing financing costs.
Liquidity Management: To enhance short-term liquidity by securitising assets and converting them into readily marketable securities.
Benefits of using 100% Structured Finance
Enhanced Liquidity: By securitising assets, entities can access additional funding and improve their liquidity position.
Risk Diversification: Investors can diversify their portfolios by investing in structured finance securities backed by a broad range of assets.
Improved Capital Efficiency: Structured finance allows for more efficient utilisation of capital and potentially enhances credit ratings, leading to lower borrowing costs.
Mitigated Credit Risk: Credit enhancements and risk transfer mechanisms in structured finance transactions help protect investors against credit losses.
Customised Solutions: Structured finance offers flexibility in tailoring transactions to meet specific objectives, cash flow requirements, and investor preferences.
Example of a property development scenario using 100% Structured Finance
Property development is becoming increasingly more competitive with increasing competition for capital. As a result, the need for innovative financing solutions grows. Structured finance provides property developers with an alternative to traditional debt financing, allowing them to secure the funds they need for their project.
In this scenario, a property developer has identified a piece of land or building in a desirable location that they wish to develop into an expensive luxury residential complex or resort. The site was purchased for £10 million and the developer estimated the total cost of the project to be £100 million. The total cost was an estimated £90 million in capital for the development itself, with the remaining £10 million for associated costs such as legal fees, taxes and the acquisition cost.
The first step in structuring the financing was to issue bonds to raise the capital required for the project. These bonds were secured by the assets of the project itself, offering investors a high rate of return on their investments. The bonds also provided investors with a certain degree of security, as the assets of the project served as collateral.
The developer also secured a loan from a specialist development lender to raise the remaining capital needed for the project. The loan was provided on a senior secured basis and was only repayable against the completion and sale of the finished project. The loan was also supplemented by additional financing from venture capitalists who were willing to invest in the project.
Once all of the capital had been raised, the developer was able to move forward with the project. To ensure it was successful, they developed a comprehensive business plan that included specific objectives, actions, and timelines for completion. With the sound business plan in place, the developer was able to successfully complete the project and sell the completed residential complex or resort at some point in the future.
By utilising 100% structured finance for their property development project, the developer was able to secure the funds they needed to make the project a success while mitigating their risk. The lender was protected by the collateral of the assets of the project, and the venture capitalists were assured of a return on their investment. The developer was able to raise the capital needed to make the project a success and move forward with their plans.
Conclusion
100% Structured Finance is a powerful financial tool that enables asset owners to unlock value, manage risk, and optimise their capital structures. By transferring assets into an SPV and issuing securities backed by these assets, entities can access liquidity, diversify risk, and enhance capital efficiency.
Despite its complexity, 100% Structured Finance offers significant benefits for various stakeholders, including financial institutions, corporations, and institutional investors, when implemented in appropriate scenarios.
Remember, before making any financial decisions, it is advisable to consult with qualified professionals such as accountants, lawyers, and financial advisors who can provide tailored guidance based on your specific circumstances.
Disclaimer: This guide is intended for informational purposes only and should not be considered as financial or legal advice. Borrowers should consult with qualified professionals and conduct thorough due diligence before pursuing Joint Venture Finance or any other financing options.
We're experienced financial experts who can help you arrange 100% Structured Finance.
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