Structuring Capital in a Higher-Rate Environment
How sponsors are rebuilding capital stacks where senior leverage no longer carries the deal.
For most of the last decade, capital stacks were designed around an assumption that senior debt would do the heavy lifting. That assumption no longer holds. Lower leverage points, tighter covenants and wider credit spreads have shifted the burden back onto equity and structured capital.
The sponsors adapting fastest are those treating the capital stack as a design problem rather than a procurement exercise. They begin with the asset and the business plan, then engineer the structure to match the cash-flow profile rather than the other way around.
Three structural patterns are recurring: longer-dated senior debt with prudent leverage, preferred equity bridging the gap to a realistic LTC, and clearer alignment between common equity holders. None are new. What is new is the discipline required to combine them.