What does mezzanine mean in finance?

What does mezzanine mean in finance?

Mezzanine financing is a hybrid of debt and equity financing that gives the lender the right to convert the debt to an equity interest in the company in case of default, generally, after venture capital companies and other senior lenders are paid. In terms of risk, it exists between senior debt and equity.

What stage is mezzanine financing?

Stage #5: Mezzanine Financing Mezzanine capital, often provided by private equity firms, is capital provided either as equity, debt, or a convertible note that is provided to a company just prior to its Initial Public Offering.

What are the advantages of mezzanine financing?

Growth Capital The advantages of mezzanine to finance capital expenditures to support increased capacity, research and development, or new market expansion are the same as for other applications: it’s cheaper than equity and offers more flexible terms and covenants than senior debt.

Which is the most common form of mezzanine financing?

unsecured subordinated debt
Structure: The most common structure for mezzanine financing is unsecured subordinated debt.

Is mezzanine financing a business loan?

Mezzanine financing interest rates Like any business loan, mezzanine financing comes with interest rates. These are usually in the 10-30% range. These higher rates are due to the relative lack of security experienced by the lender, so a personal guarantee or another form of collateral may be needed to secure funding.

Is mezzanine debt or equity?

Mezzanine debt bridges the gap between debt and equity financing and is one of the highest-risk forms of debt. It is senior to pure equity but subordinate to pure debt.

Do banks do mezzanine financing?

Banks are highly regulated, which limits the amount they can lend to a company and requires stringent covenants. The use of mezzanine financing enables companies to increase the total amount they can borrow and provides flexibility in structure and terms.

How is mezzanine debt repaid?

A bank can now refinance the mezzanine debt loan on the strength of traditional collateral. Through a sale of the company – if the value of the company has grown enough and the timing is right, the owner can sell the company and repay the mezzanine lender through the proceeds of the sale.

How are mezzanine loans secured?

Unlike a mortgage loan, which is secured by real property, a mezzanine loan is secured by a pledge of equity interests in an entity that owns real property and is governed by the Uniform Commercial Code (UCC).

Why is it called mezzanine debt?

It is called “mezzanine” because its risk level falls midway between that of secured loans made by lenders such as banks, and venture capital provided by equity investors who take a stake in the company.

What is the collateral for a mezzanine loan?

As collateral for the Mezzanine Financing, the Mezzanine Borrower would pledge its membership interest in the Mortgage Borrower.

What secures a mezzanine loan?

What is the collateral in a Mezz loan?

In the case of a mezzanine loan, the personal property collateral consists of the mezzanine borrower’s ownership interests in the mortgage borrower.

Is mezzanine financing secured?