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These subordinate loans are called "hope" notes since they may never be repaid.
Examples of blended finance include subordinate loans or equity stakes, guarantees where the donor agrees to repay a loan if the borrower cannot, political risk insurance, and technical assistance to conduct feasibility studies for the investment potential of a project.
Those subordinate loans probably have a value that's close to zero.
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Under its terms, the existing $1.215 billion office loan was divided into two pieces — a senior loan of $1.1 billion, representing the current value of the building at $835 a square foot, and a subordinate loan for $115 million.
Goldman is being joined in this effort by the Chicago investor J.B. Pritzker, who is providing a subordinate loan of up to $2.4 million, bringing the total financing to $7 million.
In exchange for putting fresh cash into 666 Fifth Avenue, Vornado and Kushner will have the right to recoup this money (with interest, in Vornado's case) before the subordinate loan is repaid.
The banks, for instance, are large buyers of the insurers' subordinated loans, and the life insurers are the largest shareholders of the banks.
Similarly, the Bank of Japan is buying stocks and may make subordinated loans to banks to boost their capital and lending capacity; the money supply is not a consideration.
To help banks shore up their capital bases, the BOJ said Friday it would offer commercial banks with overseas operations up to 350 billion yen ($3.5 billion) each in subordinated loans.
In Niger, the Bank has subordinated loans to the introduction of free health care for children under 5 [ 102].
But as Thatcher Zuse, the president of Sound Mortgage in Guilford, Conn., explained, lenders have no incentive to subordinate their loans, especially when their interest rates are tied to the prime interest rate and are at historically low levels.
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