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Alternative Asset Structures
Special purpose vehicles (SPVs) are often established for the purpose of holding specific assets in connection with a secured financing transaction, or in other situations when certain assets are required to be segregated from other assets. These may be consolidated or not consolidated for GAAP purposes, depending on the facts and circumstances of the arrangement. Importantly, the SEC staff has recently started to look more closely at the leverage taken on at the SPV level by BDCs, particularly those that are not consolidated for GAAP purposes, and has suggested that some BDCs may be using these vehicles to permit additional leverage within the structure beyond the 1:1 debt-to-equity level, which might be considered a violation of Section 48 of the Investment Company Act. Issuers are cautioned to consult counsel on the formation, structure and control of SPVs within the BDC model.
Special purpose acquisition companies (SPACs) were originally developed as an alternative to traditional acquisition vehicles, due to their ability to raise capital through the public equity markets. Formed for the purpose of acquiring one or more operating companies in a particular sector, at the height of their popularity between 2003 and 2009, approximately $22 billion of SPAC capital was raised and more than 160 SPACs were funded in the United States. Although SPACs have receded in popularity since their peak in the mid-2000s, the SPAC structure remains a potentially attractive vehicle for private equity managers to seek public capital for targeted acquisitions.
View "A Primer on Special Purpose Acquisition Companies".
Structured trust acquisition companies (STACs) represent one of the more recent developments in the effort to take private equity investments and manage and grow them as part of a public vehicle with access to the public capital markets.
The result of a desire to achieve specific goals that are not available using traditional investment vehicles, STACs borrow heavily from the concepts and principles present in existing investment structures. STACs also implement innovative organizational and structural features to achieve specific business, operational and financial objectives. As a result, STACs are best understood through their distinguishing characteristics, such as:
- Unlike other public operating companies, STACs are structured using a Delaware statutory trust and a Delaware limited liability company;
- Unlike other public operating companies, the day-to-day business and affairs of STACs are externally managed;
- Unlike BDCs, STACs are not subject to the Investment Company Act of 1940; and
- Unlike SPACs, STACs have specific target acquisitions that are consummated in conjunction with the completion of their initial public offerings.
Without much operating and market history to draw upon, it is unclear the extent to which the STAC structure will gain widespread acceptance in the investment and financial communities. However, the STAC structure offers distinct benefits to investors and private equity managers over other investment vehicles and, as a result, offers a unique perspective on the latest trend of using non-traditional means to take private equity public.
View "An Introduction to Structured Trust Acquisition Companies".
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