What is a potential consequence of structuring POBs poorly?

Structuring Pension Obligation Bonds (POBs) poorly can lead to reduced debt capacity overall. When POBs are not structured properly, they can increase the overall risk profile of an organization’s debt portfolio. For instance, if the investment returns from the POB proceeds do not exceed the interest rate on the bonds, this could not only strain the financial resources of the organization but also lead to an increase in overall liabilities. Consequently, this scenario limits the organization's ability to take on additional debt in the future, as potential creditors view the compromised financial standing and increased risk unfavorably.

Poor structuring could lead to inadequate budgeting for debt service payments, liquidity challenges, and ultimately hinder the organization's operational flexibility. Therefore, maintaining careful planning and analysis when structuring POBs is crucial for ensuring that they support rather than detract from the organization's financial health and debt capacity.