Has anyone here worked on note-on-note financing? Please share how you’d evaluate and underwrite a deal. Legal structure aside, is it fundamentally similar to providing repo financing, where you advance X% against a loan?
I imagine the overall collateral/market/etc. analysis is the same as if you were making a loan directly.
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Following, curious as well
I'm taking a guess at this, as I have not worked on structuring these, but I'd assume it is similar. Although probably more flexible structure than repo since it is a one-off transaction, instead of set parameters with a repo facility.
The analysis is the same as making a regular loan. Think about it as making a low leverage loan.
As mrcheese said, the analysis is the same as making a regular loan. However, your question was about structuring. In a REPO, there is a more "movement" lets say. In a note-on-note financing there is really just a loan being made from lender A to lender B using lender B's loan as collateral. It also depends on what kind of REPO you're talking about. In real estate, the most common REPOs are the ones provided as sort of a warehouse LOC/ABL for a securitizer to build up a portfolio of loans, before an offering. A very conservative bank, like US Bank, will offer cash to someone executing CMBS transactions. These non-securitized loans are sitting on the CMBS issuer's BS inside an SPE. Using a third party, US Bank will sort of take possession of that SPE for the duration of the REPO (unlike in a true bank treasury REPO where the securities actually swap hands). In a note-on-note, none of that is going on.
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