Helping you with all your Mezzanine Financing Needs
Mezzanine financing is a capital resource that sits between (less risky) senior debt and (higher risk) equity that has both debt and equity features. Companies use mezzanine financing to achieve goals that require capital beyond what senior lenders will extend.
When companies have maximized their senior debt borrowing capacity or seek to preserve future senior debt capacity and need additional capital to pursue growth opportunities (acquisitions, large capital programs, etc.), or for shareholder activity (distributions, shareholder buyout, etc.) they are typically left with two options: raise outside equity or utilize mezzanine financing. Mezzanine financing can be viewed as either expensive (higher coupon) debt or cheap (less dilutive) equity, as mezzanine carries a higher interest rate than the senior debt that companies would obtain through their banks (reflecting greater risk than senior debt), but is substantially less expensive than equity in terms of overall cost of capital. More specifically, mezzanine financing is less dilutive than raising additional equity to satisfy a capital need, and ultimately allows existing owners to maintain control. Mezzanine is patient capital that enables companies to pursue opportunities from a long-term strategic approach, which may not have seemed feasible otherwise.
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So, What is Mezzanine Financing Exactly?
Named for its place in the capital structure, mezzanine financing is a form of junior capital that sits between senior debt financing and equity, and is a means by which companies can access capital beyond what they're otherwise able to achieve on a senior basis. Mezzanine financing is also the last stop along the capital structure where owners can raise substantial amounts of liquidity without selling a large stake in their company.
Mezzanine typically comes in the form of "subordinated debt" or "preferred equity" with a fixed-rate coupon or dividend, and may have some participation rights in the common equity of a business, but is materially less dilutive than common equity.
Mezzanine Financing Industry Examples
- Leveraged buyouts
- Management buyouts
- Growth capital
- Shareholder buyouts
- Balance sheet restructuring or optimization
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