Page 8 - MTIA Summer 2022 Market Brief

Scenario 1: Bank Plus Private Lending
The lending side of a hybrid financing facility brings together traditional bank
lending and alternative financing from private or non-bank lenders. This
combination offers borrowers a more extensive and diversified funding pool. It
also allows lenders to share risk and potential returns, promoting a more resilient
and dynamic structure.

Scenario 2: Loan Plus Note Lending Scenario
Combining loans and notes creates the option to raise capital as both a borrower
and issuer. Some participants in such a debt structure have constraints
that allow them only to participate in a loan or a bond. The loan component
provides a flexible funding source with negotiable interest rates and payment
terms. In contrast, the notes, issued by a Special Purpose Vehicle (SPV) offer
a straightforward, less restrictive source of capital with few or no collateral
requirements and lower levels of oversight.

Scenario 3: The Structured Facility Scenario
Structured facilities also combine the features of loans and notes. For example,
a credit manager might issue notes and arrange loans to fund a portfolio of
consumer loans, such as auto or home improvement loans. As a result, investors
can access a broader range of assets than traditional loans or notes, including
consumer-based asset classes that may not be available through other means.

The Role of Third-Party Providers in Hybrid Financing
Navigating the complexities of hybrid financing requires experience and
dedication from third-party providers, including agents and trustees. These
providers ensure timely and consistent communication among all parties, handle
administrative tasks, and monitor compliance with the agreed-upon terms.

Our clients have been especially attuned to the benefits of having a consolidated
footprint under a single provider who can simultaneously service many elements
in a hybrid deal. This approach offers cohesive servicing and lower cost in
scenarios that otherwise could be quite complex.

• Working with a single organization accelerates the transaction from
close to maturity.

• Provider consolidation streamlines communication and escalation,
reducing the potential for misunderstandings or information lag.

• Eliminating the need for multiple agents and trustees can result in
significant cost efficiencies.

• A consolidated provider with broad experience can better manage complex
transactions and creatively tailor support to all parties involved.

• A single provider’s experience across the debt capital structure helps
lenders and noteholders understand the implications of combining loan
and note components into a single deal.

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