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nikol


Total Posts: 821
Joined: Jun 2005
 
Posted: 2019-05-03 22:32
The problem:

Mezzanine debt is used to leverage investments executed by Family Office. Structure is subject of negotiation.

Need to understand: if there is structural difference in the model used (by banks) to price related package of loans with respect to e.g. corporate loan. What are the major factors to be considered by the lender?

My knowledge base is Global Market Derivatives (+XVA), Risk/Basel2,3,4 (from Limits to Capital, Market, CCR, Credit, Liquidity and Balance sheet functionality). Years ago, out of curiosity, I scanned book about Real options by Trigeorgis but never applied systematically.

PS. Looks quite interesting.
https://en.m.wikipedia.org/wiki/Mezzanine_capital

ronin


Total Posts: 506
Joined: May 2006
 
Posted: 2019-05-08 14:45
I am not sure I follow this.

The financing part sounds like a project loan. Form an SPV, family office puts some equity, banks issue debt, SPV buys assets, SPV services debts, family office gets the upside or loses the equity.

But where does mezzanine come in? The SPV issues debt of various seniorities? Why? How much debt are they issuing?

Or is it not an SPV at all - does it all go on the family office balance sheet?

In that case, the banks will effectively price a CDO on all the family office's assets. And you bet correlations will all be at 100%.

It's not a corporate, so the modelling will have no similarities with how they would model corporates. It's a pool of assets and liabilities.

"There is a SIX am?" -- Arthur

nikol


Total Posts: 821
Joined: Jun 2005
 
Posted: 2019-05-08 23:19
> banks will effectively price a CDO on all the family office's assets. And you bet correlations will all be at 100%

taken.

> It's a pool of assets and liabilities

This statement confuses me. On the balance sheet A=L. What do you mean?

- The SPV issues debt of various seniorities?

Don't know if obligor is SPV or FO, but...
To my naive view SPV makes things totally isolated and it does not matter by which entity (bank, trust or else) it is created if all conditions are met = capital, operations, qualified personnel.


The project did not start yet. I know most answers to your questions, the rest I guess, but still do not feel ok to shoot them over the internet or even in person.

This is enough for now. Thank you.

ronin


Total Posts: 506
Joined: May 2006
 
Posted: 2019-05-09 10:58
> This statement confuses me. On the balance sheet A=L. What do you mean?

A=L is accounting speak. In the real world, equity is an option on assets minus debt. A=L just means you are accounting for equity on the liability side.




"There is a SIX am?" -- Arthur

nikol


Total Posts: 821
Joined: Jun 2005
 
Posted: 2019-05-09 11:54
> option on assets minus debt

Ah, yes, Merton model! How could I forget the classics.
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