Hybrid Financing- Part 1

This article serves as an introduction to the enhancement of program investments, encompassing intellectual property, immovable assets, and movable assets through the utilization of hybrid security financing. Similar to debt securities, hybrid securities provide a fixed rate of return until a specified date, constituting a versatile category that combines features of both equity and debt instruments.

The primary focus will center around establishing connections and fostering innovative approaches for managing these asset classes, particularly for asset management companies. Commencing with a case study as a foundation, subsequent exploration will encompass diverse perspectives, including considerations from the insurance sector, capital markets, and corporate finance.

Hybrid financing holds significant importance in the structuring of asset finance. Varied classifications of instruments present potential advantages in cross-border transactions. Depending on the jurisdiction, debtors might reclassify payments as interest, enabling tax-deductible interest payments. Conversely, if the instrument is deemed equity in another jurisdiction, providers could receive preferential capital gains treatment.

For project and equipment leasing companies, as well as hybrid entities, the potential for significant tax savings exists. This is particularly relevant in cases where one jurisdiction allows for transparent tax treatment, while another subjects them to corporate income tax. In the context of equipment leasing, beneficial tax treatment can be achieved by treating both parties as owners of the equipment, regardless of their roles as lessor or sub-lessor.

Future articles will delve into the existing options and explore how these hybrids can be effectively employed, providing a more in-depth discussion on the subject.