Structured Finance

This chapter gives a brief introduction to the characteristics that various structured finance transactions analyzed in the following chapters have in common. It is worthwhile to consider the entire set of such transactions in order to provide readers with a general framework and to focus attention directly on aspects which characterize each one. After having described the basis of structured transactions, points of divergence with respect to usual corporate lending techniques are presented, highlighting the advantages that can be achieved from realizing a transaction following structured finance logic.

The term securitization is used to represent the process whereby assets are pooled together, with their cash flows, and converted into negotiable securities to be placed into the market (Tasca and Zambelli 2005) or to be used as collateral in refinancing transactions with Central Banks or with market participants. Securitization is aimed at transforming illiquid assets into securities. These securities are backed or secured by the original underlying assets and are generally defined as Asset Baked Securities (ABS). Theoretically, any financial assets producing cash flows (receivables, residential and commercial mortgages, credit card receivables, and other consumer and commercial loans) can be securitized (see, e.g., Buchanan 2016, Buchanan 2017; Kara et al. 2016; Malekan 2014; Lipson 2012). The main purpose of the chapter is to analyze the basic characteristics and the market structure of traditional securitization, especially with reference to the Italian market.

Project finance is the funding solution that financial markets have developed to convey private capital to infrastructure investments. In this chapter, we first analyze the key characteristics of this structured finance transaction, pointing out the main ways it differs from corporate finance and the benefits it offers to sponsors and lenders. We then look at the market trends at a global and European level, indicating how the market has evolved in the past few years. As a final point, we focus on how capital markets providing debt to infrastructure have changed in response to the financial crisis and the drop in interest rates. What we’ll discover is that the project finance market, once firmly under control of banks, is becoming an area of cooperation between banks and long term institutional investors. The entrance of new actors in the market of structured finance for infrastructure poses critical questions for regulators, who have to strike the right balance between the need to push private investment in infrastructure and to maintain financial market stability.

The aim of this chapter is to investigate and highlight the typical features of the transactions and market covering a family of instruments known as structured leasing deals, namely, complex, intricate deals assembled ad hoc, with an organizational and contractual framework that is grafted onto a leasing transaction. To achieve the above, this chapter has been structured in four parts. The first part tackles the issue of defining structured leasing deals by examining their characteristics within the broader context of the structured finance and leasing market. The second part, instead, focuses on the market set-up, highlighting basic trends, its size and internal organization, and the types of financial intermediary operating within it. The third part looks at the leasing transaction from a tax standpoint, examining its distinctive features and possible room for maneuver, which is fundamental when assembling a structured transaction. At this juncture it would appear significant to conduct a sensitivity analysis to measure the effects on cost of capital produced by changes in the basic components of the leasing contract and tax implications for the lessee. Lastly, the fourth part examines the issue of classifying and analyzing structured leasing transactions in order to provide an initial classification scheme, illustrating their characteristics from a standpoint of the transaction’s basic set-up, tax and financial architecture and main results achieved.

The main purpose of the chapter is to analyze the technical, financial and fiscal issues associated with leveraged acquisitions. Leveraged buyouts represent a crucial deal class in the area of structured finance. In particular, these types of transaction refer to a class of extraordinary financial operations within the larger “family” of mergers and acquisitions (M&A) transactions, expression qualifying those deals that produce deep and permanent changes in the ownership structure of one or more enterprises. Leveraged acquisitions involve the constitution of a “vehicle company” (also called “special purpose vehicle”, “new company” or, simply, “newco”) for the transfer of the ownership and, in this case, the acquisition occurs “off balance sheet” for the proponent subject. Leveraged acquisitions have been the subject of extensive discussions, especially with reference to their financial structure and the financial performance of the companies involved. Furthermore, leveraged acquisitions have experienced a number of legal and fiscal challenges strictly connected to the interpretation of their technical and financial structure. In this chapter, the authors want to provide a vision as complete and critical as possible of this kind of operations, in the knowledge that a partial approach to the topic could lead to conclusions too simplistic or, eventually, vitiated from preconceived notions and judgments of value.

In the last decades, many governments across the world have sought to use public private partnerships (PPP) as a means of attracting private capital to build economic and social infrastructure. Increasingly, PPPs have strong interest groups support, especially among a new range of investors, such as pension funds, life insurance companies and sovereign wealth funds; however, some policy instruments remain an indispensable element to attract these alternative risk-adverse long-term investors in the infrastructure sector. This chapter reviews the policy actions used by governments to enhance the viability of PPP contracts and shows how economic and financial equilibrium can be established. Crucial to the latter is the expected cost of the equity and the chapter outlines a range of approaches that can be used to estimate this.

The chapter is aimed to understand how the securitisation of non-performing loans works and how to analyse and evaluate it. The first part is dedicated to the analysis of the cash securitisation on performing asset (“standard” cash securitisation). We will not enter into the details of the cash securitisation: we believe though that understanding the fundamentals of a standard cash securitisation is the key to then comprehend better the securitisation of non-performing loans and—above all—the main differences between the two structures. The second part of the chapter is dedicated to an overview of the cash securitisation market in Europe. In the third part of the chapter we will analyse the non-performing loans market in Europe with a focus on Italy where it seems to be a strong interest for this market to reopen and to succeed. The fourth part of the chapter is dedicated to the analysis of the securitisation of non-performing loans. The structure of the deal, the main counterparties involved, the risks implicit in the securitisation and the valuation criteria will be the main points analysed in the final part of the chapter. The main pricing factors of the securitisation of non-performing loans will be studied from both the Originator Bank and the Investors’ standpoint. The perspective which we have adopted in this chapter is the one of securitisation deals originated by banks: we won’t refer to securitisation originated by Corporates nor by other type of financial institutions.