What does “At risk equity that is insufficient to finacne the entity’s activities without additional support” mean I understand the literal meaning of the sentence, but who provides the necessary support? Does this mean that the equity holders own too small a percentage so its highly leveraged with debt, does it mean that the sponsor has to provide the support? And speaking of equity holders, most that receive payments form an SPE are receiving fixed debt payments What the hell does “equity” mean in this case - by definition equity holders are the ones who receive the risk and reward in any situation, so shouldn’t the “equity” holders in an spe be considered debt holders, since they are given only fixed cash flows and the sponsor receives any residual benefits, capital gains, etc?
Let’s say a company sets up an SPE in order to obtain low cost financing for a capital expenditure. However, that company only wants to infuse the SPE with 5% of capital This alone is not enough, so they have to seek capital from additional sources (other companies or individuals). There can be a clause built in which states the additional equity providers will receive no residual benefit, but at the same time they won’t incur any losses on their investment.
Ok, so its the SPONSOR whose at risk equity is insufficient, not the overall equity invested. So in this case do the equity holders receive fixed payments liek preferred stock? if so why aren’t they just considered debtholders? What makes them “Equity”
rolo550 Wrote: ------------------------------------------------------- > Ok, so its the SPONSOR whose at risk equity is > insufficient, not the overall equity invested. > > > So in this case do the equity holders receive > fixed payments liek preferred stock? if so why > aren’t they just considered debtholders? What > makes them “Equity” I don’t know if it’s preferred stock, but basically it comes down to this: let’s say I need $10 million of equity to finance the operations of an SPE. But I’m only willing to commit $2 million, so I seek $8 million elsewhere. That would be an insufficient at risk equity investment.