Private structured finance: In through the out door

In October 2006, Merrill Lynch raised $279 million to fund the leveraged buyout of Indonesian coal mining company PT Berau Coal by Indonesian businessman Rizal Risjad. The transaction was financed using two layers of secured structured debt with the subordinated issue, dubbed CELLS – collateralized equity leveraged loan securities – offering investors equity participation rights in the future sale or IPO of the company.

The structure provides investors with a highly attractive yield – 800 basis points over Libor – and significant upside from the equity participation.