Mezzanine Finance

Mezzanine financing is a hybrid of debt and equity that acts as a "middle" layer in a company's capital structure, sitting between senior debt and equity. It is used for growth, acquisitions, or real estate development, offering higher borrowing amounts than traditional loans. It is usually unsecured, high-yield, and can be converted to equity if the borrower defaults.

Key Features and Aspects of Mezzanine Financing

• Structure: It often includes a mix of cash interest, PIK (payment-in-kind) interest, and warrants or options that give lenders the right to convert debt into equity, providing them with higher returns in exchange for taking higher risks.

• Repayment:

  Often structured as a bullet repayment, meaning the full principal is repaid at the end of the term, rather than through regular amortisation.

• Subordination: Mezzanine debt is subordinated to senior debt, meaning lenders are repaid only after senior creditors in the event of default or insolvency.

• Cost: It is more expensive than senior debt due to higher risk.

• Use Cases: Common in leveraged buyouts, property development, or as a "top-up" loan to bridge funding gaps when traditional banks won't lend the full amount needed.