The Essential CFO: A Corporate Finance Playbook

Chapter Thirteen

Developing Financing Strategies

WITHIN THE CONTEXT of their leverage targets, CFOs will focus on the target mix of securities in the capital structure. Their overarching objective is to facilitate the strategic plan objectives, ensuring that the company has adequate financing at a reasonable cost, with limited volatility.

FINANCING PRINCIPLES

In developing their financing strategies, CFOs will apply core principles to guide their decision making. These principles should include keeping it simple, preserving flexibility, continuing to evolve, and reacting opportunistically.

Keeping It Simple

CFOs should establish a straightforward capital structure that is easily understood and communicated. Common stock and straight debt should be the twin pillars of this capital structure; they are the simplest to execute and, in combination, usually produce the lowest cost of capital. However, convertibles, warrants, and straight preferred stock are legitimate alternatives that—under the right circumstances—can expand a CFO's access to funding or provide lower-cost capital.

As a general rule, CFOs should require complex securities to satisfy a higher burden of proof than plain vanilla alternatives, and they should be cautious in their willingness to serve as a trailblazer for an untested form of financing. Innovation can make sense, but only if the financing technique has been proven in the market and designed to meet clearly stated corporate finance objectives—rather than intended ...