Goal
There is no strict definition of mezzanine capital. It is a flexible financing instrument sharing some of the characteristics of both debt and equity. It occupies a ‘middle position’ in a company’s capital structure.
From a legal perspective, mezzanine capital is usually a subordinated medium-term committed loan. It ranks behind senior bank borrowings, so that it is repaid only after the bank debt has been fully discharged or when the senior lenders permit prepayment. It ranks ahead of equity investors’ dividend, sale and liquidation claims.
From a risk perspective, the greater the amount of senior debt and the smaller the equity capital base, the greater will be the risk taken by the mezzanine capital provider.
For taking mezzanine risk, we seek a blended return which is partly debt and partly equity related. Typically the borrower will pay interest on the mezzanine loan at a market-related interest rate. An equity interest might be in the form of a warrant to buy a pre-agreed amount of equity at a fixed price at a future time or an amount of equity purchased up-front.
Sometimes mezzanine capital is structured using other financing instruments, such as loan stock or preference shares. Mezzanine capital can also be in the form of a debt instrument convertible into equity at a future date.
Our company is allways looking for new sources for capital to be used for Mezzanine Capital, if you know such source please feel free to contact us.
