asset-light debt

http://www.businessweek.com/bwdaily/dnflash/content/jul2007/db20070730_976843.htm --The holding company (subsidary) note was part of a broader phenomenon known as asset-light debt, in which collateral levels are far below the usual standard of 30% or more of a company's enterprise value. Collateral could be around 10% or even nothing at all. Such asset-light deals were a bit of a fad in finance. --Here's the usual process in such deals: The new corporate entity is created with the sole purpose of owning stock in the original, operating company. The holding company can issue debt, even though it doesn't generate any revenue or profits. It can typically pay off debt in one of two ways. The operating company can give the holding company a cash dividend, which can be used to pay back interest and principal on the holding company's debt. If the operating company elects not to make the cash payment, the holding company doesn't have to worry about going into default, though. It simply adds its regular interest payments to the amount of principal that's due. The idea is that the holding company's debt can be repaid all at once in a few years when private equity investors sell the operating company or take it public.