Structured Preferred Equity – A Versatile Tool In The Debt Restructuring Toolbox

For many sponsor-backed and other highly leveraged private companies, the business impact of COVID-19 is just beginning to apply pressure to financial covenant compliance. As borrowers and private credit (or other) lenders think through options on how best to address pending or anticipated defaults, structured preferred equity should be considered as a versatile tool in the toolbox.

Structured preferred equity can take different forms but is generally characterized as equity filling gaps between traditional equity and debt positions on a balance sheet. Whether consideration for covenant holidays, right-sizing balance sheets through debt for equity swaps or a method of “handing the keys” to a lender group, structured preferred equity can be tailored to accomplish the parties' goals.