Corporate Bankruptcy Financing Options

Green finance emphasises "additionality" - yet only 2% of corporate and municipal green bond proceeds initiate projects with new green features. The vast majority of green bonds are used to (a) refinance ordinary debt, (b) continue ongoing projects, or (c) initate new projects without new green aspects. As an example of (c), the semiconductor firm ADI promoted its first green bond as underwriting a new headquarters that was LEED Gold certified. But that ADI’s Irish R&D facility had already achieved the same level of LEED certification, so the green aspect of the project was not novel for the issuer. This does not mean that the project wasn't valuable (rolling out existing green technologies is useful), but contradicts the claims of some green bonds which are to develop new technologies. Instead, it highlights the dangers of black-and-white thinking, viewing "green bonds" as a homogenous entity. A green bond that develops new technology is different from one that rolls out existing technology, which in turn is different from one that refinances ordinary debt. Simply calling a bond "green" masks the wide variety of uses to which the proceeds may be put. By Pauline Lam and Jeffrey Wurgler. https://lnkd.in/gHcCxy3N

How to Manage Procurement When Supplier Payments Are Delayed One of the toughest challenges in procurement is managing supplier relationships when your company is facing payment delays. It’s a delicate balance between maintaining trust with suppliers and protecting your company’s interests. Here’s how I’ve learned to navigate it: 1. Transparent Communication: Be honest with suppliers about the delay, its reason, and the expected resolution timeline. Most suppliers appreciate clarity over silence. 2. Prioritize Critical Suppliers: Identify strategic vendors whose products or services are essential to operations and work on partial or staggered payments if possible. 3. Strengthen Relationships: Use the time to build rapport, not hide. Proactive engagement can go a long way in maintaining long-term partnerships. 4. Negotiate Flexibility: Offer realistic payment plans or negotiate extended terms in exchange for future commitments. 5. Internal Collaboration: Work closely with finance and leadership to prioritize payments and escalate urgent cases when needed. 6. Document Everything: Keep a clear trail of all communication and agreements to protect both parties and ensure future accountability. Procurement isn't just about sourcing — it's about relationship management, problem-solving, and strategic thinking under pressure.

Private Equity: Mezzanine Debt Explained (Cheatsheet) 🏆 Mezzanine debt is a hybrid instrument that blends senior debt and equity, carrying a moderate risk profile. Often, mezzanine financing includes embedded warrants - options to convert debt into equity - which add flexibility for borrowers and increase the level of subordinated debt. Although the higher risk drives up interest rates, mezzanine debt remains cheaper than issuing equity. It typically yields an annual return of 12%–20%, among the highest for debt instruments. Why Do Companies Use Mezzanine Financing? Companies turn to mezzanine financing when traditional debt options (such as bank loans or asset-based borrowings) have been exhausted for expansion, special projects, or acquisitions. Often, existing investors become mezzanine lenders because they understand the rationale behind the expansion. This arrangement offers them a short-term opportunity to earn high-interest payments with the potential for equity conversion in the long run. It also helps the borrowing company bring in new owners during M&A activities. Types Of Mezzanine Debt: • Subordinated Debt + Equity Kicker (Warrants) • Subordinated Debt + Co-investment Tag in Equity • Subordinated Debt without Equity Participation • Convertible Debt Option • Preferred Share Among these, the most popular option is subordinated debt combined with a warrant, which allows the debt to be converted into equity. In cases where the borrowing company is sponsored by a private equity firm, mezzanine lenders often forgo the warrant, depending on EBITDA levels. The EBITDA can be categorized into three groups – $1 to 5 million, $5 to 20 million, and more than $20 million. A higher valuation reduces the need for a warrant. Additionally, borrowers must have positive cash flow to handle the high-interest payments and avoid default. The Need To Obtain Mezzanine Debt: There are certain purposes for which a company issues mezzanine debt, including: • M&A Activity • Expansion and Growth • Management and Shareholder Buyouts • Leveraged Buyouts • Refinancing or Capital Restructuring Note: This excludes minor business improvements. A key benefit of mezzanine debt is that it reduces the equity requirement for businesses undertaking crucial projects. How Is Mezzanine Debt Repaid? Mezzanine lenders earn annual returns of 12%–20%, higher than typical corporate debt (which is usually a fixed rate plus a country premium). Returns can be received through periodic interest payments, payable-in-kind (PIK) interest, equity ownership, or performance-based shares. As a short-term financing instrument for specific projects, mezzanine debt is repaid with priority due to its high interest rate. Enjoyed this post and want to learn more? Visit Financial Edge Training — Trusted to Train Wall Street 🏆

India’s Green Bond Revolution: How the Country is Financing its Climate Goals During the 26th session of the Conference of the Parties (COP26), India expressed its commitment to intensify climate action by presenting five key elements of its climate action, known as the ‘Panchamrit’. At COP26, Prime Minister Narendra Modi demanded that rich countries contribute more – US$1 trillion in climate finance just for India over the next decade. The Climate Finance Working Group’s estimation that ₹118 trillion will be needed to address climate change, with only ₹64 trillion currently available and ₹54 trillion rupees unrestricted, necessitates innovative financing solutions. India aims to achieve net-zero emissions by 2070, indicating a long-term goal towards sustainability and combatting climate change, and green bonds are playing a key role in financing this transition. Climate finance is the financing of projects and activities that help to mitigate and adapt to climate change. This can come from public, private or alternative sources that can be used for mitigation or adaptation projects in various sectors and regions. What are Green Bonds? Green bonds are a debt instrument that raises funds for projects that have a positive environmental impact. Green bonds can be issued by governments, corporations, and financial institutions. According to the Print, India leads Asian emerging markets (excluding China) in green bond issuance Financial institutions and government agencies have used the instrument since 2015. Indian green bond issuances have reached a total of $21 billion as of February 2023.  The private sector was responsible for 84% of the total India’s debut in the sovereign green bond market: first deal landed a greenium! The sovereign green bonds were auctioned by the Reserve Bank of India in two tranches in January and February 2023, split equally between five and 10 year tenors. The bonds were oversubscribed by more than four times. According to Climate Bonds Initiative, Both tranches priced inside the yield curve, obtaining a greenium. The ‘greenium’, which is the lower yield/return investors will accept for the green label, has a substantial positive signalling effect. The Indian sovereign green issuance scores well on these aspects - The six basis point greenium, secured against these suboptimal conditions is better than the predictions of most analysts. The greenium could grow in the future as the number and volume of issuances increase. Green bonds have the potential to transform India’s climate finance landscape, but they require a holistic and collaborative approach from all stakeholders. Some key challenges 1/ Reducing the borrowing costs and ensuring the credibility of green projects through clear standards, regulations, disclosures, and verification mechanisms. 2/ Developing a supportive taxation policy 3/ Enhancing public awareness #climatefinance #greenbonds #zeroemissions #greenenergy #climatechange

The government just doubled startup loan guarantees to ₹20 crore with no collateral required. But 90% of founders won't access it for these 5 reasons. While most startups are busy chasing VCs and giving away massive equity chunks, the government quietly enhanced the Credit Guarantee Scheme for Startups (CGSS) in the 2025 budget. The changes are significant: ⤷ Guarantee limit doubled from ₹10 crore to ₹20 crore ⤷ Guarantee fee reduced to just 1% for 27 strategic sectors ⤷ Still ZERO collateral required ⤷ Coverage of 65-80% of the loan amount This is not just another government scheme. It's a game-changer for smart founders. If you wonder why it matters? Each 10% of equity you save in early rounds compounds to 2-3x more founder ownership at exit. Just a sample breakdown of what I mean looks like this [1] Startup raises ₹10 crore equity at ₹50 crore valuation = 20% dilution [2] Alternative: ₹7 crore equity + ₹3 crore CGSS loan = 14% dilution [3] Difference: 6% equity saved [4] At a ₹500 crore exit, that's ₹30 crore more in founder pockets Yet 90% of founders won't access this opportunity. Here's why ↓ 1. Startup Mindset Problem → Obsession with VC funding as validation → "Debt is for traditional businesses" mentality → Fear of repayment obligations 2. Awareness Gap → Most don't even know this scheme exists → Fewer understand how to actually access it → Information largely stuck in government websites 3. Wrong Approach to Banks → Pitching like it's a VC meeting (completely wrong approach) → Not preparing bank-specific documentation → Approaching the wrong banks/branches 4. Poor Documentation → Missing key elements banks require → Unrealistic financial projections → Insufficient evidence of repayment capacity 5. Wrong Stage Application → Too early (pre-revenue or minimal traction) → Team gaps that create risk perception → Unclear use of funds with measurable outcomes So who actually qualifies for this funding? The IDEAL candidates have  ⤷ 6-12+ months of revenue history ⤷ Clear unit economics with path to profitability ⤷ DPIIT recognition ⤷ Strong founding team with domain expertise ⤷ Clear use of funds with ROI metrics ⤷ Previous smaller loans successfully repaid (even personal) The optimal startup capital structure isn't all equity or all debt - it's a strategic mix. In the US, founders typically use 30-40% debt in their growth phase. In India, it's under 10%. This presents a massive arbitrage opportunity for founders who think differently. Don't wait - early movers have the advantage as banks are more receptive now before applicant numbers surge. #StartupFunding #DebtFinancing #CGSS #GovernmentSchemes

Private credit typically refers to non-bank, non-publicly traded debt financing.   The private credit market in the U.S. has grown substantially over the past two decades and has become a major source of financing. Private credit in the U.S. has grown exponentially, from roughly $46 billion in 2000 to about $1.7 trillion currently. The initial trigger was the tighter regulatory regime for banks post the Global Financial Crisis but that tailwind gained momentum from the growth of private equity which leveraged debt financing for acquisitions, investors chasing yield in a low-rate world and greater investor democratisation. Retail investors in the U.S in fact now access private credit with as little as $1,000, leading to growing retail flows into such funds. Private credit funds in the U.S and Europe have become large and mainstream and provide credit to a complete range of corporate borrowers, from large to small.   The Asian private credit market is still relatively small with less than 5% of global market share. The corollary of this is that bank led credit is about a third to half of the total credit supply in the US and Europe but is over 70% in Asia, including India. Whenever an asset class grows this rapidly there will be issues that would arise. The main issues around the rapid growth of private credit in the U.S centre around the illiquidity of the investments, relative opacity and the systemic risk, since banks often finance these non-bank credit providers.    The Indian private credit market has also grown rapidly. The categories of providers of private credit in India include NBFCs, Domestic AIFs, Venture Debt funds, Foreign private credit funds and, more recently, Family Offices and UHNIs. Insurance companies and pension funds, which are large players in the U.S, are limited participants here because of the regulatory guidelines. This asset class is seeing growing traction on the demand side. The drivers of demand growth are the growth of the space banks and NBFCs can’t or are not keen to finance, underdeveloped bond markets, the ability of private credit providers to create customised solutions for borrowers, growth of private equity led transactions and increasing investor appetite for higher yielding fixed income instruments, especially after the change in taxation on fixed income funds. As a result, we have seen an increase in activity on the supply side too, with more AIFs coming into existence.   As India grows, the demand for credit will have to be met by a wider range of providers and the opportunity for private credit funds is therefore going to be large and attractive. With growth comes greater complexity and issues like liquidity, top quality governance and a strong focus on borrower quality will be key as private credit funds strive to become part of mainstream portfolios and a large asset class by itself.

Perilous Positions The U.S. and European High Yield bond market has not been particularly welcoming as of late for CCC-rated primary securities. It’s remarkable that since January 2022 (approaching 2 years!), there has been ZERO new issuance of CCC-rated HY bonds in the European corporate credit market, while the first CCC-rated bond in the U.S. high yield market was just issued last Friday. With $3.3 trillion in Bonds and Loans outstanding in U.S. and Europe, issuance is a trickle, allowing the maturity wall to build. The table below shows the size of the CCC Bond and Leveraged Loan Market in the U.S. and Europe is ~$300 billion in total, as CCC’s represents 11.2% & 9.1% of the U.S. and European Bond market, while CCC-rated Euro Bonds and Loans are 4.2% and 9.9%, respectively. Many CCC-rated companies have an extended runway with viable options available to secure financing as they have solid business lines with a ton of flexibility and strong management such as USI, an insurance service company who is the only recent CCC issuer to tap the new issue market. Other CCC’s can also make it through these trying times by raising new equity, selling assets, improving operations, delaying CapEx, reducing fixed costs, etc. For those that cannot secure financing, debt-for-equity swaps, recaps and restructuring are more likely. Capital Solutions and creative financing options will allow many of these companies the opportunity to preserve value. Others, of course, will restructure. In the U.S. alone, there are 133 companies representing nearly $350 billion with debt that is trading below a 70-dollar price. With a growing debt maturity wall, and an economy forecasted to slow in 2024, capital solutions, dislocation and distressed debt should provide ample prospects for opportunistic investors in 2024. The default rate will likely increase in the coming months, as our watch list shows a growing cohort of companies likely to restructure in 2024. The corporate sectors with the greatest percentage exposure within the High Yield marketplace include Telecom, Media, Consumer Discretionary, Healthcare, Technology and Industrial.

🚀 Demystifying Subordination Risk in Syndicated Loans & Private Credit Corporate debt structures are usually more complex especially in LBOs and leveraged recapitalizations. Understanding subordination risk is critical - whether you're a lender, investor, or a borrower. Let’s break it down with a real-world case study and hard data: $10Bn Financing for MegaCorp (Hypothetical LBO) Capital Structure: 1. $6Bn Senior Secured Loan (at an operating subsidiary, say OpCo, secured by charge on factories & IP) 2. $3Bn Unsecured Bonds (at the parent holding company, say HoldCo, no collateral) 3. $1Bn Subordinated Debt (at HoldCo, contractually junior in repayment) 1️⃣ Collateral Subordination: Risk: Only secured creditors can claim specific assets. What Happens in Default? - Banks (senior secured lenders) seize and sell MegaCorp’s factories/IP. - Unsecured bondholders get nothing until secured lenders are fully repaid. 💡 Data Point: Secured loans recover ~60-80% vs. ~30-50% for unsecured (S&P). 2️⃣ Contractual Subordination: Risk: Subordinated debt agreements explicitly rank repayment priority. What Happens in Default? - The $1Bn subordinated debt is contractually behind unsecured bonds at the HoldCo in repayment. - Even if HoldCo has $500million left after paying unsecured bonds, sub-debt may recover pennies on the dollar. 💡 Data Point: Subordinated debt recovers just ~20-30% on average (Moody’s). 3️⃣ Structural Subordination: Risk: HoldCo debt is structurally junior to OpCo debt because cash flows must service operating subsidiary debt first. What Happens in Default? 1. OpCo’s $6Bn loan is repaid first from subsidiary cash flows/assets. 2. HoldCo’s $3Bn bonds only get leftovers (if any). 3. Subordinated HoldCo debt? Near-total wipeout in a default scenario. 💡 Data Point: HoldCo debt recovers ~10-30% vs. ~60-80% for OpCo debt (Moody’s). Why Does This Matter: ✅ For Lenders: Pricing reflects subordination—HoldCo debt often yields 300-500bps more than OpCo debt. ✅ For PE Firms: They could exploit structural subordination by loading OpCo with assets and HoldCo with debt. ✅ For Investors: Recovery rates vary wildly — always important to check where you sit in the capital stack. In restructuring battles, OpCo lenders often block cash upstreaming to starve HoldCo lenders/creditors—a key risk in Leveraged Buyouts (LBOs). Krishank Parekh | LinkedIn

The FM announced yesterday a credit guarantee scheme of upto Rs.100 crores for MSMEs. Most of the newspaper articles or the reporters are not able to explain it lucidly as the announcement might still be at the policy level. Let me explain how the loan/ credit guarantee schemes by the governments work. ➡️In any loan guarantee scheme, the govt provides a guarantee to the lender(bank for example) that in an event of default, the govt will pay the lender the residual amount(of default). ➡️Due to the lack of a collateral, (you as a MSME )your lending application will not outrightly rejected by the lender. You can ask the lender to apply for the govt backed guarantee scheme. ➡️You as a business don’t apply for the scheme yourself – it comes into play if the lender decides your loan application won’t be strong enough to meet its usual lending criteria, ie lack of a suitable collateral. ➡️For such lending cases, usually the interest and charges are going to be higher as the lender perceives these cases to be riskier. ➡️This is what is being mentioned repeatedly by the press as a guarantee fee. ➡️Usually the loan guarantee schemes cover both working capital and term loans so that the MSMEs can use the fund as per their business needs. ➡️Therefore, overdraft, trade finance, supply chain finance or investment into a new plant/ machinery are usually covered. ➡️There is always a cap to the guaranteed amount. In the announcement yesterday, the guarantee by the govt is upto Rs.100 crores or lower. ➡️This means you might be able to avail Rs.150 crores of a loan provided you can offer a suitable security/ collateral upto 50 cr and the remaining is covered by the scheme. ➡️The govt will come out with a list of accredited lenders who will participate in this scheme. ➡️Behind the scenes, it is expected that the lenders will perform their thorough due diligence and the loans are provided to only viable businesses.The rules for borrowing are going to be stringent for avoiding any misuse. ➡️In an event of default, the lender bears the initial loss. After the lender has taken all reasonable steps to recover the loan, they can claim the guaranteed amount from the govt. ➡️If there is any uncovered loss, that is absorbed by the lender. 💰The rationale for providing such guaranteed scheme is to stimulate economic growth and job creation. Many a times, the private lenders fail to provide sufficient credit to the MSMEs due to perceived high risks or lack of collateral. These schemes bridge this gap. Hope this helps. #unionbudget2024 #loanguaranteescheme #msme

Elevated supply, limited disruption While macroeconomic data points related to the U.S. labor market and inflation remain front-and-center for many investors, the ongoing theme of corporate resilience has also been top of mind. In recent weeks, we have highlighted a few areas where this is evident, including the solid fundamental metrics for liquid and private credit, as well as the (continued) rebound in announced strategic M&A transactions. In this Global Credit Weekly, we turn to the primary corporate debt markets, which are also demonstrating elevated activity levels. Such activity has been well received by investors in both the primary and secondary credit markets. We believe two key factors have underpinned this backdrop: First, investor demand for new corporate credit has been supported by all-in yields, which remain attractive by historical standards. This is especially visible in the USD IG market, where the tenor and rating composition has also been shifting. Second, the leveraged finance market has experienced back-to-back years of limited ‘new money’ issuance into the market, which has helped create a supportive technical tailwind. #CorporateCredit #Supply #Issuance #USDIG #USDHY For Institutional Investors Only, read the full report here: https://1blk.co/3HVDozX