Asset-backed commercial paper & CLO’s

I need someone to check my logic here to make sure this structure makes sense. Not sure asset management is the best thread for this, but figured it’s probably the closest.

Insurance company has $X in receivables from policyholders. Let’s assume from a statutory accounting perspective they have healthy liquidity.

On top of already borrowing cheap debt from the FHLB’s (thanks Uncle Sam), insurance company wants to free up more liquidity from their receivables. An SPV is set up to exchange your receivables for cash. You opt for ABCP as you get a better rate instead of standard commercial paper, and figure the risk trade off is worth it.

You now have $X above what’s comfortably needed to fund your liabilities, and you take advantage of a textbook arbitrage opportunity. However, the leverage doesn’t stop there. Here is where I’m struggling to understand if this is accurate:

Instead of just investing in some high-yielding low-medium-tranche debt security, you fund another SPV that loans money to real estate firms in the form of effectively preferred equity. Real estate firm leverages that money to acquire assets with additional debt if accretive, and clip an attractive post-tax coupon. However, because the insurance company is essentially loaning the funds through an SPV, the insurance company has no direct interest in the title of any property (thus, not requiring any inter-creditor agreements, limiting liability, etc). Since the interest of the SPV is in the real estate firm’s holding entities (not the loan guarantor or the property-level SPE), it’s more like a CLO/CFO, which can potentially be securitized again and sold? Is this possible or can you not securitize this without inter-creditor agreements?

Even MORE crazy, if insurance company had a private equity arm, they can leverage the funding for the RE companies to acquire assets that they plan to stick their portfolio companies in. On top of just yield, the capitalized value on the balance sheet on buying a 50% leased office building in manhattan and filling it up to 90% with one of your portfolio companies is substantial (and you bet principals would have some kind of carried interest in that).

AND, for the insurance company as a whole, if you wanted to do an LBO to acquire a competitor, your balance sheet is such a complicated black box if everyone is good on debt service that you can leverage up even more, since trying to assess the risk and/or mark-to-market everything is effectively impossible.

Someone let me know if I’ve gone too far down the rabbit hole or am on to something…