Deal Point: A group of institutional investors are in the process of making a significant investment in a hybrid debt structure. Tax counsel to the investment group advises that, while not significant, there is the risk that the debt financing could be characterized as equity by the taxing authorities, and thus interest payment could be deemed not to be a deductible expense. Given the margins involved in the investment, the investors are unwilling to proceed unless this tax risk can be addressed.

Transactional Insurance Solution: A tax insurance policy is purchased insuring against any taxes due as a result of failure of interest to be deductible under the structure.