- resources in finance

Amsterdam Institute of Finance
4-day course on
Structured Finance:
Mezzanine and More

Prof. Ian Giddy,
New York University

Structured Finance is the design of debt or equity financing techniques in order to solve particular issuer or investor problems that cannot be solved by conventional methods.

The Course
This course will be taught around four major topics employing in-depth group work on case studies, financial analysis and deal documentation. The focus will be on identifying situations that call for nonstandard corporate finance solutions, and the design and pricing of the situation-specific financing instruments. Examples of such situations include balance sheet or capital constraints, private equity and leveraged buyouts, recapitalizations, stress-induced financial restructuring, and arbitrage-driven hybrid debt funding.

Asset securitization, one of the core techniques of structured finance, constitutes a growing segment of the European and global capital markets. In recent years the ABS market has enabled companies and banks to finance a wide range of assets and claims, and has attracted a variety of fixed-income investors. Not only does securitization transform illiquid assets into tradable securities, but it also manages to transform risk by means of the separation of specific financial assets from a company or financial institution with little loss of revenue. The assets, once separated from the originator, are employed as backing for high-quality securities designed to appeal to investors.

Mezzanine finance, including warrant bonds, convertible notes, preferred stock, index-linked securities and others now offer corporations and banks a means of financing during circumstances when ordinary techniques fall short. There is no longer a clear division between debt and equity. Companies seek the best of each, while lenders and investors often demand the security and priority of claims offered by debt, while expecting some participation on the upside in exchange for the risks they take.

Leveraged financing methods are often employed in M&A, management buyouts and other forms of ownership transition. Recently many companies are looking at using leveraged finance as a broader tool, including the use of "whole business securitization" which falls somewhere between asset-backed financing and leveraged lending. A catalyst for leveraged buyouts is so-called mezzanine finance that falls between senior debt and pure equity.

The course explains why and when corporations and financial institutions should issue mezzanine funding, asset-backed securities, leveraged finance or other forms of structured finance. In four information-packed days of instruction and application, we offer an economic cost-benefit analysis of the techniques, an insight into the legal, tax and regulatory principles, the risks and how they can be managed, methods of cash-flow modeling, and a roadmap for choosing among the alternative forms of these techniques that are employed in today's capital market.

Who Will Benefit From This Course?
The course is of relevance to both potential originators and investors in structured securities: corporate finance officers, commercial and investment bankers, securities analysts; investment officers; corporate treasurers and other individuals whose professional future may be enhanced by an understanding of structured finance techniques. One goal for participants is to develop a check list or rapid overview of the key criteria in a structured finance deal, to consider when analyzing a proposal, so as to grasp the main strengths and risks of each structure after an initial rapid analysis.

Participants will be provided with a package of materials useful to the structuring and analysis of specially tailored financing techniques, including pertinent articles, rating agency reports and sample documentation from actual deals done in Europe and elsewhere. The course will include case studies of actual financings, as well as hands-on exercises, and will give participants the opportunity to demonstrate their understanding of deals through presentations and discussions. 

Key Issues

Some of the issues to be explored:

  • What is structured finance? Why and when should companies consider the use of structured financing techniques?
  • What are the key legal and credit issues surrounding asset-backed financing, and how can they be satisfied? Synthetic ABS: how does is really work?  How are credit derivatives used in conjunction with synthetics?
  • How and when can structured notes provide cheaper funding for issuers? From an investor's point of view, how can the security be dissected, and what drives its pricing?
  • What is mezzanine finance? How do equity-linked financing techniques such as convertible and profit-participation bonds work, and when does it make sense to use them? How are they priced?
  • What is leveraged finance? How can it be used to enable a management buyout or other forms of ownership transition? When should a company undertake a leveraged recapitalization?

Outline of Course



Day 1 Credit-Linked Finance
  • Introduction to Structured Finance
  • Survey of Structured Finance Techniques, and When it Makes Sense to Use Them
  • The ABS Market and the Securitization Process
  • Example of Typical Structure and Cash Flows
  • Legal, Tax, Accounting and Disclosure Aspects of ABS
  • Focus: Auto Loan Securitization
  • Focus: Asset-Backed Commercial Paper Conduits
  • Amortizing loans, waterfall paydown, and prepayment
  • True sale aspects
  • The Rating Process and Credit Enhancement
  • Techniques of credit enhancement: Credit risk management; Overcollateralization; Senior-subordinated structures; Excess servicing and liquidity accounts; Financial guarantees
  • Focus: CLOs and CBOs
  • Credit enhancement and loss-given-default calculation
  • Group work on structuring and pricing an arbitrage CDO

Case Studies
Ford Motor Credit ABS
Mound Financing
Designing a CDO

Introduction to ABS
Rating European CDOs

Other Resources
ABS costbenefit
ABS waterfall paydown

Day 2 

Structured Notes
  • Synthetic Structures and Role of Credit Derivatives
  • CLO unfunded and super-senior tranches
  • Overview of Structured Notes
  • When are Hybrid Securities and Structured Notes Cost-Effective?
  • Callable Bonds, Options, Swaptions and Other Fixed-Income Derivatives Embedded in Structured Financing Techniques
  • Focus: Callable and Puttable Bonds
  • Demonstration of Hands-on Use of Pricing Models
  • Structured Products: Performance-Enhancement versus Income-Enhancement Instruments
  • Pure-play Structured Products
  • Design and Pricing of Equity-Linked Structured Notes
  • Bonds and Notes with Warrants
  • Group Work on Structured Note Case Studies


Case Studies
Noname Bank Synthetic CDO
A Day in the Life
Bavaria Bank Bond
Singapore Land
Oil-Linked Notes

Credit Derivatives 102
Synthetic ABS

Structured Notes

Day 3

Equity-Linked and Mezzanine Finance
  • When Should a Company Use Quasi-Equity or Mezzanine Financing Techniques?
  • Design of Convertibles, Warrants and Other Debt-Equity Hybrids
  • Focus: Convertible Bonds
  • Group work on a company's cost of convertible bond financing
  • Structuring Mezzanine Finance in Buyouts
  • Seller Notes
  • Second Lien Debt
  • Participation Notes
  • Mezzanine Notes: PIKs and Warrants
  • European Warrantless PIKs and Other Developments
  • High Yield Bonds as a Leveraged Financing Technique: US vs European Markets
  • Group work on evaluating a funding proposal with revenue-linked mezzanine debt


Case Studies
Golden Telecom
Sealed Air Convertible
Jefferson Smurfit PIK
Piaggio High Yield
Woodstream Mezz
Woodstream Termsheet
Albania Bridge

Cost of Capital
Second Lien Loans
Mezzanine Finance 1
Mezzanine Finance 2

Other Resources
On-Line Convertible Model
Stock Volatility

Day 4

Leveraged Structured Finance
  • Leverage and Structured Securities in European and International M&A and LBO deals
  • Leveraged Build-ups and Leveraged Recapitalization
  • Example of Spreadsheet-Based Debt Capacity Analysis for Leveraged Finance
  • Focus: Synthetic Ratings and Debt Pricing
  • How to Structure and Price the Leverage for an Acquisition or Buyout
  • Post-Acquisition Leveraged Finance
  • Focus: Exit Strategies
  • Group work on valuation and structuring of leveraged acquisitions and buyouts
  • Summary and Recap


Case Studies
Sealed Air's Recap


A Note on LBOs

Other Resources
Corporate Finance and Debt Capacity Tables

The Instructor
Ian Giddy has taught finance at NYU, Columbia, Wharton, Chicago and in 40+ countries worldwide for the past two decades. He was Director of International Fixed Income Research at Drexel Burnham Lambert from 1986 to 1989. The author of more than fifty articles on international finance, he has served at the International Monetary Fund and the U.S. Treasury and has been a consultant with numerous corporations and financial institutions in the U.S. and abroad. As a banker and consultant he has been involved in the growth of the ABS market in the USA, Europe and Asia. He is the author or co-author of The International Money Market, The Handbook of International Finance, Cases in International Finance, Global Financial Markets, Asset Securitization in Asia and The Hudson River Watertrail Guide. | | | | contact
Copyright ©2006 Ian Giddy. All rights reserved.