Illustrative sizing · $5MM net to Project
Full Term Sheet Detail
Face $43.11mm · growth capital $5.00mm · coupon $106,329/yr (0.247%) · constant yield 1.2085% · warrant allocation $2.00mm.
Terms
- Issuer / Borrower
- The Project — the operating company raising growth capital. It issues a single five-year senior note and a warrant, together sold as one unit.
- Lender
- A single institutional holder of the unit — private credit fund, family office, or insurance balance sheet. The Lender advances the full face amount at closing.
- Note / Term
- Five-year bullet. No amortization, no cash sweep, no mandatory prepayment. Principal is due in a single payment at maturity and is collateralized 1:1 by U.S. Treasury STRIPS maturing on the same date.
- Unit Price / Raise
- One unit is priced at the note's face amount. Face equals raise equals STRIPS face: every dollar advanced is covered by the Note and collateralized at par value at maturity.
- Funds Flow at Closing
- Of each $1.00 advanced: 81.50¢ to the segregated cell for UST STRIPS, 11.60¢ of growth capital to the Project, 4.92¢ of policy premium, 1.23¢ to the coupon reserve escrow, 0.50¢ broker fee and 0.25¢ dealer custody fee. No portion other than the growth capital advance is ever paid to, held by, or property of the Project.
- Lender Interest
- A stated cash coupon of 0.247% per annum (qualified stated interest) plus original issue discount accreting on a constant-yield basis at 1.2085%. The OID accrual chain terminates exactly at face.
- Collateral
- U.S. Treasury STRIPS with face equal to the note face, purchased at 81.50¢ and held in a segregated custody account at the Dealer Custodian. The STRIPS accrete to par at the note's maturity date.
- Policy
- An insurance policy written by the Insurance Company cell permitting the Lender to claim any fraction of the STRIPS at any time — no default, no consent, no sale process. Claims settle in kind and satisfy the Note at full maturity value.
- Policy Premium
- 4.92¢ per dollar advanced, paid at closing to the cell as a tax prefund. Unearned premium is returned pro rata on any claim.
- Wrapper Protections
- The cell is a segregated, bankruptcy-remote account of the Insurance Company. Cell assets are not available to creditors of the Project or of other cells, and are not commingled with the Project's estate.
- Coupon Reserve
- 1.23¢ per dollar advanced, escrowed at closing and sized to fund all five stated coupons. The reserve is held outside the Project and is released to the Lender on each coupon date.
- Claims / Forfeiture
- A claim delivers STRIPS in kind at their accreted value, cancels the matching fraction of warrant coverage and of the remaining coupons, and returns matching unused reserve plus unearned premium to the Lender. Cell options are reduced pro rata by any claims filed.
- Default at Maturity
- If the Project does not repay the bullet, the policy auto-files a claim for the full remaining STRIPS. The Lender receives full principal at par plus all five coupons, and retains the 20% warrant in full. Cell options are forfeited.
- Warrant Terms
- 20% of the Project fully diluted at closing, nominal strike, vesting at maturity or on default. Under §1273(c)(2) the unit price is allocated between warrant and note by relative value: warrant 18.033, note issue price 81.967 per $100.
- Liquidity Events / Change of Control
- The warrant participates in any sale, merger, recapitalization or IPO on the same terms as common equity, without cap and without regard to the Note's repayment status.
- Covenants / Reporting
- No financial maintenance covenants. Quarterly financial statements, annual audited accounts, capitalization table on request, and notice of any liquidity event or change of control.
- Cell Interests at Maturity
- Measured on the matured STRIPS at face: Insurance Company retains 51%; options are granted at closing to the Project (34%), the Broker (10%) and the Dealer Custodian (5%), exercisable only at maturity and only on full repayment.
- Tax Intent
- The unit is intended to be treated as an investment unit under §1273(c)(2), with the note carrying OID accreting on a constant-yield basis. The stated coupon is sized to exactly 21% of each year's interest income so the instrument is cash-neutral to the Lender on a federal corporate basis.
Structuring dispositions
How the standard asks are handled, and where in the terms they sit.
| Standard ask | Disposition | Where |
|---|---|---|
| Financial maintenance covenants | Not required. Principal is collateralized 1:1 by Treasuries with an anytime claim, so credit performance does not drive recovery. | Collateral · Policy |
| Security interest in the Project's assets | Not required. Recovery sits in the segregated cell, not in the Project's estate; the Lender never depends on foreclosure. | Wrapper Protections |
| Amortization or cash sweep | Declined. The bullet is what allows the capital to compound for the full term; the STRIPS handle repayment risk. | Note / Term |
| Higher cash coupon | Declined. The coupon is a tax-matching mechanism sized to 21% of interest income, not a yield component. Return comes from the warrant. | Lender Interest · Coupon Reserve |
| Consent rights or board seat | Not required. The warrant participates in exits without governance; the Lender's downside is not governance-dependent. | Warrant Terms |
| Warrant cap or return cap | Declined. Upside is uncapped and survives a maturity default; that asymmetry is the instrument. | Warrant Terms · Default at Maturity |
| Sale process or standstill on default | Not applicable. The policy auto-files a claim for full principal; there is no workout, no negotiation, no committee. | Claims / Forfeiture · Default at Maturity |
| MFN or anti-dilution ratchet | Declined. Dilution is fixed at 20% fully diluted at closing, which is what makes the paper standardizable. | Warrant Terms |
| Tax opinion | Provided as a closing condition. Unit treatment under §1273(c)(2) and the constant-yield OID schedule are opined on by counsel. | Tax Intent |
Illustrative example only; all figures are hypothetical. Not an offer, a solicitation, or tax, legal, insurance, or investment advice.