Strategic Value Partner’s Brian Himot on Structured Capital

Who Is Brian Himot, and Why Should You Care?

Brian Himot leads SVP’s structured capital platform globally and sits on the firm’s investment committee. His career path
isn’t the typical “born on a Bloomberg terminal” story: he started as a tax lawyer, moved into finance, and then built a
buy-side career centered on crediteventually focusing heavily on private, illiquid parts of the market. That background
matters because structured capital lives at the intersection of legal structure, credit analysis, and real-world business
constraints.

At SVP, structured capital is positioned as a natural extension of a broader opportunistic credit and private equity platform:
the firm can be both a capital provider and an operational partner when situations get complicated (and they often do).

Structured Capital, Explained Like You’re a Busy Human

“Structured capital” can sound like a buzzword that wandered out of an investment banking pitchbook. In practice, it’s a
toolkit of financing solutions that typically sit between senior debt and common equityoften called
hybrid capital or junior capital.

The Core Instruments

• Preferred equity: equity-like capital with priority economics (e.g., a fixed or floating dividend, often
  with accrual features) and downside protections that common equity doesn’t get.
• Junior debt: debt that sits below senior lenders in the repayment line, usually compensated with higher
  yield and tighter structuring.
• Hybrid variations: structures that blend termsthink PIK (pay-in-kind) features, detachable warrants,
  conversion mechanics, or “unitranche-ish” solutions with customized risk allocation.

The key idea: structured capital aims to deliver funding that is flexible for the company and
protective for the investor. The best structures aren’t “one-size-fits-all.” They’re tailored to the
company’s cash flows, growth plans, leverage tolerance, and ownership goals.

Why Structured Capital Is Having a Moment

Private credit has expanded dramatically, and as more money chases the “safe” parts of lending, competition shows up first
in the most crowded lane: senior, first-lien deals. When first-lien markets get tight, capital providers either accept
thinner termsor they move to parts of the stack where complexity creates opportunity.

Three Tailwinds Pushing the Market

1. Crowding in senior lending: More capital (including from vehicles like BDCs and insurers) pushes spreads
   and terms toward borrower-friendly territory. Investors looking for better risk-adjusted returns start exploring hybrid
   solutions.
2. Founder and sponsor needs are evolving: Many businesses want growth capital, recapitalization capital,
   or shareholder liquidity without giving up control or selling meaningful common equity.
3. Education is spreading: More advisory teams at banks now pitch hybrid solutions, and more owners now
   understand that “sell equity” isn’t the only door out of the room.

In plain terms: structured capital is gaining mindshare because it solves a modern problemcompanies need capital, but they
don’t always want the two extremes (max leverage or max dilution).

Sponsor vs. Non-Sponsor Deals: The Tradeoffs Himot Actually Cares About

One of Himot’s most useful points is that the “best” deal type isn’t a religion. SVP looks at both sponsor-backed and
non-sponsored opportunities. But the process, competition, and alignment can differ materially.

Sponsor-Backed Deals

• Pro: A sponsor can have follow-on capital and experience navigating financings.
• Con: Processes can be more intermediated and competitive, which often pressures terms.
• Reality: It’s easier to do high volume herehelpful for “volume shops,” less critical for a selective platform.

Non-Sponsored (Often Founder-Owned) Deals

• Pro: More direct dialogue with owners and more bespoke structuring.
• Pro: Owners often care about partner quality and long-term fitnot just cheapest pricing.
• Use case that comes up a lot: “Debt-averse” owners who need capital for growth or family liquidity and would rather avoid
  selling a meaningful minority common equity stake.

The hidden advantage of founder situations: you’re often not competing against 20 lookalike term sheets. You’re competing
on credibility, alignment, and whether you can actually deliver the solution you’re proposing.

How Deals Get Structured: What “Flexible” Really Means

“Flexible capital” sounds nicelike a yoga instructor who also underwrites credit. But what does it mean in documents and
economics? Here are common knobs structured capital providers adjust.

1) Cash Pay vs. Accrual (PIK) Economics

Companies with strong cash flow might pay some current yield. Companies prioritizing growth might prefer a portion of returns
to accrue (PIK) to reduce near-term cash burden. Accrual can be helpfulbut it’s also a risk signal. Great structures
balance runway for the company with clear guardrails for investors.

2) Senior Debt Compatibility

Structured capital often needs to coexist with senior lenders. That means careful intercreditor mechanics, covenant design,
and clarity about what happens if performance wobbles. If the documents are messy, the workout will be messier.

3) Governance and Control Protections

Hybrid investors may get consent rights on major actions (e.g., acquisitions above a threshold, new debt, asset sales) and
reporting packages that are more “hands-on” than typical equity checks. Think of it as: “We’re not here to run your company…
but we would like you to not spontaneously purchase a yacht factory.”

4) Upside Participation (When Appropriate)

Depending on the risk profile, a deal can include warrants, conversion features, or performance-based step-ups. The goal
isn’t to grab equity for sport; it’s to align returns with risk and growth outcomes.

SVP’s Angle: Underwriting First, Structure Second

Here’s a refreshingly non-glamorous truth from Himot: the fancy terms aren’t the job. The job is underwriting the business.
Structure matters, but it can’t rescue a weak company with a broken competitive position.

Strong underwriting means digging into:

• Industry dynamics: Is the sector stable, cyclical, regulated, or exposed to disruption?
• Competitive moat: Why does this business winand will it keep winning?
• Cash flow durability: What happens in a down case? A “small recession” case? A “customer leaves” case?
• Management quality: Can leadership execute the plan, and do incentives match the plan?

He also highlighted something that’s easy to underestimate: the ability to communicate analysis clearlyin writing and verbally.
In structured capital, your investment memo is basically your survival kit.

Specific Scenarios Where Structured Capital Can Be the Best Tool

Scenario A: Founder-Led Growth Without a Control Sale

Imagine a profitable, founder-led company doing meaningful EBITDA (for example, nine figures). The owner wants to expand capacity,
add a facility, or enter a new geographybut refuses to “lever to the moon” and doesn’t love the idea of selling common equity to
someone who will start saying “synergies” unironically. Preferred equity or junior capital can fund growth while preserving control.

Scenario B: Family Liquidity Without Selling the “Family Asset”

Multi-owner businesses (siblings, cousins, generational shareholders) often hit a predictable wall: one branch wants to reinvest,
another wants liquidity. Structured equity can create a path to buy out a shareholder or pay a dividend recap with less dilution
than a traditional equity sale.

Scenario C: Sponsor-Backed Companies Needing a Capital Stack Reset

Sponsors sometimes need capital that doesn’t overly tighten covenants or force an immediate refinancing at an inconvenient time.
Hybrid solutions can provide runwayespecially when senior markets are crowded or terms are shifting.

Risks: The Part Everyone Pretends Isn’t There

Structured capital is powerful, but it’s not magic. The risks tend to hide in three places:

• Structure complexity: If stakeholders don’t understand the waterfall, they will learn it during a dispute. That’s… suboptimal.
• Cash flow optimism: Overestimating “normalized” earnings can turn a comfortable structure into a tight one.
• Refinancing reality: Many plans assume optionality that may not exist in a down market.

Good investors mitigate these risks with conservative downside cases, tight documentation, and alignment with owners on what
“success” looks like over yearsnot quarters.

Questions Founders Should Ask Before Taking Structured Capital

• What problem are we solving? Growth capital, liquidity, refinancing, or all three?
• How does this affect control? What consents exist, and when do they activate?
• What happens in a bad year? Are there levers (like accrual) that preserve liquidity without triggering chaos?
• What’s the endgame? Refinance, sell a minority stake later, sponsor buyout, or long-term hold?
• Do we like the partner? Not “Do we like the rate?”do we trust the counterparty to behave rationally under stress?

Where Structured Capital Goes Next

The most interesting forward-looking point is simple: structured capital is still early in its broader adoption cycle.
As more founders and sponsors learn the product, and as advisors get better at matching structures to needs, the opportunity
set expands.

Expect continued growth in:

• Founder-friendly preferred equity that emphasizes alignment and minimized dilution.
• Hybrid solutions for companies caught between “too good to sell” and “not ready for heavy leverage.”
• More specialized underwriting as investors seek to avoid “too much money chasing too few great deals.”

Translation: the deals will keep coming, but the winners will be the teams that can underwrite, structure, and partnerwithout
confusing “creative terms” for “good risk.”

Field Notes: of Real-World “Experience” Patterns (Without the Confidentiality Headaches)

Because structured capital lives in the messy middle, the most valuable lessons usually come from watching what happens
after the closing dinner. Below are common “experience patterns” reported by founders, sponsors, and investors across
the U.S. middle marketthink of them as the greatest hits album of things people wish they’d known before they signed.

1) Owners Don’t Actually Want “Maximum Capital”They Want “Maximum Optionality”

In early conversations, companies often ask for the biggest check possible. After a few real discussions, the request changes:
“How do we raise what we need while keeping our choices open?” This is where structured capital shines. A thoughtfully designed
preferred equity deal can provide liquidity and growth funding while avoiding a control sale and keeping a future strategic exit
on the table. The experience lesson: the best deal is rarely the largest; it’s the one that preserves options when the world
inevitably gets weird.

2) The “Relationship” Is a Term Sheet Item, Even If Nobody Labels It

Founder-led businesses, in particular, tend to interview capital partners the way they’d interview a senior executive. They’ll
ask (directly or indirectly): “Will you be constructive if something goes sideways?” The experienced owners don’t just pick the
cheapest capital. They pick the counterparty who understands the business model, respects the culture, and can act like an adult
under stress. A structured capital partner who communicates well and doesn’t hide behind intermediaries can win deals even when
they aren’t the lowest-cost option.

3) The Downside Case Is Not a Spreadsheet ExerciseIt’s a Human Exercise

Many problems aren’t “numbers problems”; they’re “behavior problems.” When performance slips, the key question becomes: do the
stakeholders share a plan? Good structured capital deals anticipate this by defining decision rights clearly, setting reporting
expectations early, and aligning incentives so the company can execute a turnaround or a reset without instantly triggering a
zero-sum fight. The experienced investors spend as much time understanding management as they do modeling covenantsbecause
management execution is the real covenant.

4) Complexity Needs Translation, Not Decoration

Structured terms can be helpful: accrual features, step-ups, call protection, covenants, baskets, and more. But complexity that
isn’t explained becomes fear, and fear becomes friction. Teams that have lived through structured deals learn to “translate”
every key mechanic into plain language: Who gets paid, when, under what conditions, and what must happen for everyone to win?
If a founder can’t explain the waterfall to a trusted advisor in five minutes, it’s probably too complicatedor poorly explained.

5) The Best Outcomes Come From Underwriting the Business, Not Just the Structure

Structured capital can reduce dilution and manage cash flow timing, but it can’t fix a weak value proposition. The most successful
deals tend to share a common experience: investors and owners align around a real business plangrowth initiatives, capex, pricing,
new channels, operational improvementsand the structure is built to support that plan. When the plan is strong, structured capital
becomes a strategic accelerant. When the plan is vague, it becomes an expensive bandage.

In other words: structured capital isn’t just “money with a personality.” It’s money that demands clarityabout strategy, risks,
and what partnership means when the headlines are less friendly.