IntaCapital Swiss - Collateral Transfer Hybrid Financing

Hybrid Financing – Part 1

This is an introductory article for enhancing program investments, such as intellectual property, immoveable assets as well as moveable assets using hybrid security financing.

This is an introductory article for enhancing program investments, such as intellectual property, immoveable assets as well as moveable assets using hybrid security financing. Hybrid securities, in the same way debt securities do, pay until a certain date, a fixed rate of return. It is a generic term that is used to describe a security, that combines equity and debt securities.

The main focal points will be centred around related establishment and creating news ways of thinking of these assets classes, for asset management companies.

Beginning with a case study to move things along, various other approaches can then be considered that involve many other aspects such as from the insurance viewpoint, capital markets and corporate finance.

Hybrid financing is very important from the viewpoint of asset finance structuring. Differing classifications of an instrument mean there could be advantages in cross border transactions.

Under one country’s laws it maybe possible for a debtor to have payments reclassified as interest or the debtor may have the benefit of tax deductible interest payments. On the other hand if the instrument is classified as equity in another country then the provider could receive preferential capital gains treatment.

For project companies and equipment leasing companies, this could also be true for hybrid entities. Hybrid entities are either some sort of structure or company whereby they can benefit from significant tax savings, this can occur if in one jurisdiction might let them qualify for transparent tax treatment but in another they could also be subject to corporate income tax. If we take inter jurisdiction of equipment leasing, beneficial tax treatment for both parties can be achieved by them both being treated as the owners of the equipment, irrespective if they are the lessor or sub-lessor.

In further articles, we can look at the various options currently available and how these hybrids can be used, and discuss them in more depth.

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