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Kicker

Kickers are an integral tool in debt investment, used to attract lenders and investors who have the potential to generate financial returns. Market conditions and investor profiles vary, and kickers can be tilted in favor of either lenders or borrowers, depending on the situation.

The most popular kickers are convertible bonds and warrants to purchase stocks, both of which allow investors to convert their investment into some form of equity at either a predetermined price or a predetermined ratio. Convertible bonds are typically used by companies to raise capital for expansion and other business activities, and the “convert” feature allows investors to convert their bonds into shares of the company’s stock at an agreed-upon price. Warrants, on the other hand, give investors the right to buy a predetermined number of shares of a company’s stock at an agreed-upon price, but unlike convertible bonds, warrants do not include an obligation for the company to buy back the shares at the price originally agreed upon.

Investment Real Estate loans can also use kickers to incentivize prospective investors. Rather than a conversion feature, the kicker in this case is usually a portion of the total income or gross rental receipts generated from the property in question. In this case, the added kicker helps to make the debt more attractive because it means that investors will receive income from the real estate loan, in addition to payment of the principal and interest.

Kickers can be beneficial to both borrowers and lenders depending on different circumstances. For borrowers, it can lower the cost of obtaining debt financing, while also providing investors with additional returns on their investments.

Ultimately, kickers are a creative and effective way to increase the appeal of debt instruments in the competitive market, allowing lenders and investors to work together and make mutually beneficial investments. Kickers have the potential to make debt instruments more attractive to potential investors. In return, investors will benefit from the added potential for return on their investments.

Glossary Index