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A Capital Idea Is The Art And Form Of Deal Structuring

Posted on April 8, 2018 in Uncategorized

In the capital markets, both domestic and foreign, there are myriads of titles to define “finance or capital markets”. This financial jargon, in many cases, appears more symbolic than real or practical. Stereotype words, phrases or expressions referencing capital, credit or financing categories can easily mislead, or more specifically, if misinterpreted, lead to incorrect assumptions and strategies.

Consider the numerous headings or titles used to describe financial instruments or tools of negotiation. An Open Credit Facility, Revolving Credit Facility or Contract Credit Facility, for example, as understood by one CEO/CFO, or one Banker/Lender, may convey an entirely different meaning to another. The same would apply to conventional terms used for institutional criteria, regulatory policy or lending philosophy.

Consider also the stereotype financial language Bridge Financing or Bridge Capital. These headings can be applied to “an interim state of funding while other forms of capital are being sought”. This same language could also signal “911-Finance” to make payroll or stave off creditors until “real financing” is in place. In the traditional corporate sense, the first instance of bridge financing supports a positive funding platform that “bridges the gap between negative to positive cash flow and/or term debt or debt/equity or an IPO”. In the second instance, however, the bridge financing could provide a solution to a crisis for management or a remedy for damage control to prevent creditor default or reorganization bankruptcy.

Ultimately, all financial categories and/or symbols can be demonstrated or applied creatively and uniquely to an individual transaction. Through the various methods and techniques of capital strategy, deal structuring, capital structuring and other forms of money lending and/or investing, this demonstration or application must in turn fit–be applicable to customary and standard regulated institutions and/or government regulations, both domestic and foreign.

The principal of lending and/or investing, in addition to financing a “good deal”, is largely structured around regulatory requirements: government standards, banking, insurance, institutional, etc. Without the working knowledge of this principal, which governs and operates the capital markets and legal systems, even the best transactions would never fund. Therefore, the art and form of deal structuring involves marketing models, economic models and “structured term sheets and financial statements” to reflect the unique and individual transaction, under GAAP standards. This leads essentially to capital strategy, to capital structuring and to creative applications that result in funding.

The art and form of deal structuring of a capital idea is creative, practical and individual; it is never repetitive. The goal is to fully realize the benefits of the marketing model, enhanced assets and value added through the deal structured term sheet and financial statements: a capital idea is the art and form of deal structuring.