Assessing Preferred Equity as Part of the Financing Toolkit

Originally published in Global Legal Insights, “Fund Finance Laws and Regulations 2024: Assessing Preferred Equity as Part of the Financing Toolkit” explores the evolving landscape of fund financing, emphasizing the role of preferred equity in a world that is still largely dominated by debt financing.

The article details the nature of preferred equity, highlighting its distinction from debt financing due to its equity characteristics, lack of a security package, and positioning in the capital stack with priority over common equity but behind creditors. It examines the structure, key terms, and necessary confirmations for successful preferred equity financing, including the importance of tax, legal, portfolio company diligence, and accounting considerations.

The authors also discuss the strategic uses of preferred equity for sponsors, such as optimizing the capital structure, enhancing returns, and facilitating liquidity without the constraints of traditional debt. And they underscore preferred equity's growing appeal as a flexible, efficient financing tool that complements or serves as an alternative to NAV financing, reflecting its potential to address the diverse liquidity needs of funds and their sponsors effectively.

Click here to read the full article: “Fund Finance Laws and Regulations 2024: Assessing Preferred Equity as Part of the Financing Toolkit”

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