Strip financing is the repackaging of different types of obligations—debt, preferred stock, common stock etc.—into one security. The idea is to ease conflicts of interest and agency costs between the holders of the initial components, bond and stockholders.
In deals that are strip financed, returns to investors are generally derived from their equity positions (seen through how investors from time to time take losses on the debt components of the strip). Therefore, in a situation where a company is acquired through a strip-financed deal, and that company begins to default on loans, investors are more willing to renegotiate lending terms, thus avoiding the hold-up problem often seen in prior to and during bankruptcy. Also, repackaging can raise a securities' liquidity. One popular form developed in Canada was the Income Trust, which combined income from a high yield bond with a stock dividend. Beginning in 2003 this concept was expanded to the U.S. when "Income Deposit Securities" (also known as Enhanced Income Securities) were first offered on the American Stock Exchange (AMEX). These consist of a high yield bond and a class of common stock committed to pay a high dividend from free cash flows combined as a single unit.
strip, financing, this, article, does, cite, sources, please, help, improve, this, article, adding, citations, reliable, sources, unsourced, material, challenged, removed, find, sources, news, newspapers, books, scholar, jstor, december, 2009, learn, when, rem. This article does not cite any sources Please help improve this article by adding citations to reliable sources Unsourced material may be challenged and removed Find sources Strip financing news newspapers books scholar JSTOR December 2009 Learn how and when to remove this message Strip financing is the repackaging of different types of obligations debt preferred stock common stock etc into one security The idea is to ease conflicts of interest and agency costs between the holders of the initial components bond and stockholders In deals that are strip financed returns to investors are generally derived from their equity positions seen through how investors from time to time take losses on the debt components of the strip Therefore in a situation where a company is acquired through a strip financed deal and that company begins to default on loans investors are more willing to renegotiate lending terms thus avoiding the hold up problem often seen in prior to and during bankruptcy Also repackaging can raise a securities liquidity One popular form developed in Canada was the Income Trust which combined income from a high yield bond with a stock dividend Beginning in 2003 this concept was expanded to the U S when Income Deposit Securities also known as Enhanced Income Securities were first offered on the American Stock Exchange AMEX These consist of a high yield bond and a class of common stock committed to pay a high dividend from free cash flows combined as a single unit See also editSecuritization Contingent value rights EarnoutReferences edit nbsp This finance related article is a stub You can help Wikipedia by expanding it vte Retrieved from https en wikipedia org w index php title Strip financing amp oldid 1117957812, wikipedia, wiki, book, books, library,
