How Companies Evaluate Structured Finance Options

By Gradivus Corp · 16 October 2026 · Insights

Companies evaluate structured finance options by testing each one against the same criteria: all-in cost, fit with the business's cash flows, tenor, the security and control given up, covenant burden, execution time and certainty, regulatory and disclosure obligations, and how deep investor or lender appetite really is. The right structure is rarely the one with the cheapest headline rate. It is the one the business can service comfortably through a downturn, without covenants or restrictions that get in the way of its plans.

The usual menu in India is fairly settled: bank and NBFC term loans and working-capital lines; listed or unlisted non-convertible debentures (NCDs); optionally convertible debentures (OCDs) and other hybrid instruments; securitisation and receivables-backed structures; external commercial borrowings (ECBs); and project-finance structures with escrowed cash flows. Each sits within its own regulatory frame.

The options at a glance

How the evaluation usually runs

1. Define the need precisely

Write down the amount, when it will be drawn, what it is for and where repayment will come from. Growth capex repaid out of incremental EBITDA needs a very different structure from a refinancing, an acquisition or a working-capital requirement. Skip this step and the exercise turns into comparing term sheets rather than structures.

2. Map the cash flows and stress them

Build a monthly or quarterly cash-flow model and run at least one downside case: lower revenue, slower collections, higher input costs, higher interest rates. If a structure only works in the base case, it is the wrong structure.

3. Assess the existing capital structure and constraints

List existing borrowings, the security already given, negative pledges, consent requirements and the headroom left on current covenants. In practice this list often decides which options are feasible at all, well before anyone looks at cost.

4. Compare all-in cost, not the coupon alone

The coupon is only part of the bill. Add arranger and advisory fees, rating fees, trustee and legal costs, stamp duty, listing and depository charges, hedging costs on foreign-currency borrowing, and the cost of any security or guarantee. Annualise the one-off costs over the expected life of the debt.

5. Weigh control, covenants and flexibility

Ask what the company is giving up. Security over key assets, restrictions on dividends or acquisitions, change-of-control clauses, information rights and prepayment penalties all carry a cost that never shows up in the rate.

6. Check regulatory fit and execution path

• NCDs. Listed issues need a credit rating. Private placements of debt securities of ₹20 crore or more have to use an Electronic Book Provider platform. SEBI's NCS Regulations also do not allow call or put options to be exercised within one year of issue.
• ECBs. Under the RBI's 2026 amendment, an eligible borrower may raise ECB up to the higher of USD 1 billion outstanding or total borrowings up to 300% of net worth, subject to the stated exceptions. The minimum average maturity is three years (one to three years for certain manufacturing borrowers, up to USD 150 million outstanding). There is a negative list of end-uses, and reporting is LRN-based.
• Securitisation. Where banks and NBFCs are the originators, RBI rules set minimum risk retention (5% or 10%, depending on maturity) and a minimum ticket size for securitisation notes.

7. Test investor and lender appetite

Talk to the likely funders early. Appetite for a sector, a rating band or a tenor can change quickly. An early conversation costs far less than designing a structure nobody will buy.

8. Plan the post-funding operating model

Every structure brings ongoing work: compliance calendars, covenant tests, payment dates, security cover maintenance, escrow waterfalls and reporting. Decide before signing who will run these, and on what systems.

Risks and dependencies

Floating-rate and bullet structures shift interest-rate and refinancing risk onto the borrower at reset or at maturity. Unhedged foreign-currency debt can wipe out a headline cost advantage. Rating-linked step-ups and investor eligibility rules can magnify the effect of a downgrade.

Two risks are internal. New debt may conflict with existing lenders' covenants or security, so the documents need reading side by side. And listed and multi-lender structures need finance, secretarial and legal teams that can sustain the ongoing compliance.

Frequently asked questions

Is an NCD cheaper than a bank loan? Sometimes, particularly for a well-rated issuer looking for fixed-rate, longer-tenor money. Add rating, arranger, trustee, listing and compliance costs and the gap can narrow. Compare all-in cost over the expected life of the debt.

When does an ECB make sense for an Indian company? When overseas lenders offer tenor or pricing that still beats domestic options after hedging and compliance costs, and the intended end-use is permitted under the RBI's ECB framework. Run the comparison on a hedged basis; the unhedged rate flatters the ECB.

What is the difference between an NCD and an OCD? An NCD cannot be converted into equity and is repaid in cash. An optionally convertible debenture gives the holder (or sometimes the issuer) an option to convert into equity on agreed terms. That can lower the cash coupon, but it may dilute shareholders.

Can a non-financial company use securitisation? Receivables-backed structures do exist for corporates. The RBI's 2021 securitisation directions, however, apply to regulated lenders such as banks and NBFCs acting as originators. A corporate considering this route should take specific legal advice on the structure.

What role does escrow play in structured finance? An escrow or trust-and-retention account routes cash through an agreed waterfall: typically operating costs first, then debt service, then reserves and distributions. Lenders take comfort from knowing they are paid before anything is set aside or distributed.

How Gradivus can help

Gradivus works with companies on capital structures that fit the business. At company level, we assess the existing capital structure, the mix of debt, equity and hybrid instruments, tenor, pricing and how well the debt lines up with cash flows. At instrument level, we work on listed and unlisted NCDs, OCDs, PTCs and equity-linked instruments. Our support covers the full cycle, from pre-issue design through issuance to post-issue compliance and monitoring. Explore our Capital Structuring and Fund Raising services, or contact us for a consultation. Services are provided as per agreed scope.

This article is general information, not legal, tax or investment advice.