A deal i'm looking at would be a structured equity investment with a 1.0x liquidation preference convert.
Does anyone have any good reading materials to explain in detail how a liquidation pref works?
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When investing in early-stage enterprises, preferred stock holders can expect to earn at least the market rate 1X liquidation preference. Investors like Participating Liquidation Preferences, which are frequently referred to as "Double-Dip Preferred."
If the company doesn't go through formal bankruptcy proceedings but rather EBITDA is just slowly ground down to zero, does the liquidity preference protect you against that? If the company never makes distributions then you too can lose all your investment?
If there is no equity to distribute, then you still get zero. The preference just means you're in front of the common shareholders.
Could you please PM me and I will send you something?
Thanks Tamara, I have PMed you.
Just replied - good luck with your deal!
Hi Tamara, hope you had a good weekend and thank you for all your insightful comments to date (have found it tremendously insightful). If it's not too much trouble, could I PM you for the materials as well? As context, I am due to join a Special Situations investing team (e.g. Apollo Hybrid Value / BX Tac Opps) and therefore am looking to brush up all technical aspects as it pertains to SS investing. :)
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