Preference Given: Preferred Equity's Growing Reach Across Structured Finance

Preferred equity is gaining in usage across rated fund finance and structured credit products. Sponsors of collateralized fund obligations (CFOs), collateralized loan obligations (CLOs), rated note funds, and other securitization-style vehicles are increasingly using a myriad of bespoke preferred structures to widen and incentivize a growing pool of third-party capital providers willing to sit below the rated debt.

This OnPoint focuses on that structured finance use case and how it is showing up inside and outside the formal capital structure of such transactions. We have been actively involved in many preferred equity arrangements, and share our views based on our work for both asset managers and third-party capital providers.