What does structured finance mean? What is the financing structure

Structured finance is a broad term used to describe a financial sector that has been created to facilitate the transfer of risk through complex legal and corporate entities.

Structured finance refers to the use of special purpose entities or special purpose vehicles (SPESORSPV) to divest specific assets with future cash flows and use the specific assets as the subject matter for financing.

In other words, structured finance is aimed at a specific asset, not the owner of the asset. This risk shift was used to create the creation of loan securitization without halting underwriting standards**, resulting in a credit bubble in the mid-2000s, as well as a credit collapse and financial crisis in 2007-2008.

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The word you are talking about is one of the professional vocabulary, and mastering the professional vocabulary can make you feel like a fish in water in the learning of the industry, the translation and meaning of the word are as follows: many financial institutions provide services to special enterprises that need special financing. Traditional financial instruments, such as loans, are generally not sufficient to meet these financing needs.

Structured finance generally involves very complex financial transactions.

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Financing structure, also known as capital structure in a broad sense, refers to the organic composition and proportion relationship between the funds obtained by different channels when an enterprise raises funds. The modern financial system includes a system of financial institutions that provide indirect financing, a financial market system that serves direct financing, and a system of financial regulators that supervise and manage the financial industry. Various systems play a unique role in providing financial integration.

Structured finance refers to off-balance sheet financing by a company that uses a specific purpose vehicle to divest a specific asset with future cash flows and use that specific asset as the subject matter.

In layman's terms, it is to achieve the purpose of corporate financing by changing the company's equity structure and debt structure.

The so-called structured financing is a way of financing in the capital market, which is not to raise funds through the issuance of bonds, but to obtain financing through the issuance of asset-backed cash flow in the future. In most cases, an asset-backed issuer is the sponsor of the underlying asset.

These assets cover a wide range of categories, including commercial real estate mortgages**, asset-backed**, commercial lease agreements**, residential mortgages**, and any other financial instrument with a cash flow. In recent years, there have been some new and popular varieties of structured finance**, the underlying assets of which are structured finance** and a variety of corporate bonds.

1. Characteristics of structured financing.

Because structured financing** is issued through the mechanism of combining the future cash flow of the underlying asset, it is generally referred to as asset-backed**. From an accounting point of view, the issuance of structured finance** is not the same as raising funds by issuing bonds at all levels**, companies or other organizations.

Specifically, financing through the issuance of structured financing** has the following five characteristics:

1 ** is issued through an ad hoc agency, i.e. SPV or SPE;

2. The issuance of structured financing** is represented in terms of accounting treatment as asset** rather than debt financing;

3 Structured finance** must provide investors with services for the maintenance of the underlying assets;

4 The creditworthiness of structured finance** is primarily determined by the creditworthiness of the underlying collateral assets;

5 There is always a need for credit enhancement for structured finance**.

2. Elements of structured financing.

From the perspective of the development history of the U.S. structured finance market, there are eight factors that play a very important role. These elements are often complementary to each other, and the development of one element will drive the development of the others. It is important that these eight elements go hand in hand and develop together.

For each ** transaction, a sound legal system should be established to protect the legitimate interests of investors in the underlying assets. Most importantly, when the promoter and seller are in bankruptcy, the law must protect the investor's right to recover the cash flow of the underlying asset. Therefore, for ** transactions, it is necessary to establish a special purpose vehicle with good credit standing and will not go bankrupt.

From an economic point of view, the purpose of setting up a special purpose vehicle is: first, to purchase all loans initiated and financed by the lender, and second, to issue ** to facilitate the origination of basic loans. The SPV has no assets other than loans from lenders and no liabilities other than those related to the outgoing**.

In addition, a sound legal framework should be established to clearly define the responsibilities and obligations of issuers, trustees, loan administrators and service providers.

Capital structure refers to the combination of long-term funds obtained by an enterprise and their interrelationships. The long-term capital** of an enterprise generally includes owners' equity and long-term liabilities, so the capital structure mainly refers to the combination and interrelationship between the two.

The financing structure refers to the organic combination of funds raised through different channels and the proportion of various funds when an enterprise obtains funds. Specifically, it refers to the proportional relationship between all the capital items of the enterprise, that is, the composition of its own funds (equity funds) and borrowed funds (liabilities), which is the basic structure on the right side of the balance sheet, mainly including the proportional relationship between short-term liabilities, long-term liabilities and owners' equity. The financing structure of an enterprise not only reveals the ownership of the enterprise's assets and the degree of debt guarantee, but also reflects the size of the enterprise's financing risk, that is, the greater the proportion of liquid liabilities, the greater the debt repayment risk, and vice versa, the smaller the debt repayment risk.