Clarification on norms for preferred and common equity in self-funded model

searcher profile

February 22, 2024

by a searcher from University of California, Los Angeles - UCLA Anderson School of Management in Los Angeles, CA, USA

Hi all,

One thing that's a little ambiguous to me on self-funded 7a deal structures is whether capital provided by the searcher as part of an equity injection counts towards common shares or preferred shares. I suspect the answer is 'it depends on what you can negotiate', but I'm curious if there are any norms here the investor community expects.

I.e., can a searcher participate in their own preferred equity raise where common shares are consideration for the PG, search, deal negotiating, etc. and searcher money put in would buy preferred shares alongside equity investors?

Thanks!

~Austin

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commentor profile
Reply by a professional
from Villanova University in West Chester, PA, USA
Hi ^redacted‌ we help many of our clients with this. It does depend as there are several negotiable terms (coupon, distributions, buyout rights, step up, etc.) that all work together to determine the expected rate of return. To answer your question though, yes, the searcher can participate in the preferred and we have put this together in deals for clients. I’d be happy to discuss it further.
commentor profile
Reply by a searcher
from University of California, Los Angeles in Los Angeles, CA, USA
Makes sense, thanks!
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