Mezzanine Loan

Mezzanine Loan

Importance of Mezzanine Loan

Mezzanine loans are a hybrid form of capital containing elements of both a term loan and equity investment. Mezzanine loans were created to fill the gap in a leveraged buyout transactions left between the bank loan and the equity. From its humble beginnings, mezzanine capital has evolved to possess the best elements of both loans and equity. They now are available to companies as a direct loan solution to fill any number of gaps that may emerge as a company grows. Through a process of evolution, mezzanine loans have come to offer companies low cost, long term financing. Structured as a long term loan, yet providing similar capital benefit as an equity investment, mezzanine loans are now taking center stage as a true non-bank alternative. Mezzanine lenders are unique thinkers in the lending world today. Through envisaging a company’s debt capacity as a multiple of its free cash flow, as opposed to its asset value, mezzanine lenders are able to provide large loan amounts to support acquisition and growth. Through utilizing mezzanine capital smartly, companies can accrue significant equity value.

Mezzanine Loan Explained

For many years, leveraged buyouts were the focus of mezzanine lenders and they happily supplied the gap financing to make the deal work. As the mezzanine capital industry has grown and developed its own standing as an asset class, it has expanded its market reach to include acquisition financing, growth capital, working capital and management buy-out financing. Today roughly 50% of the mezzanine lenders focus on these types of transactions which are known as non-sponsored situations. Structurally, mezzanine loans are known as subordinated debt in that they are in second position to the senior debt in the capital structure. Senior debt is short term, risk averse capital with near term repayment requirements. A mezzanine loan (also known as a subordinated debt), is long term, risk seeking capital with long term repayment requirements. The structure of a mezzanine loan is designed in a bespoke way to fit the requirements of the borrower.

Put Mezzanine Loans in Your Capital Structure

Through advancing a multiple of the borrower’s free cash flow, the mezzanine lender usually provides a large quantum of additional capital to the company, enabling them to take a large step forward in terms of size and profitability. Equity value gains are more rapidly achieved through increased revenue and profitability. Culturally, mezzanine lenders are passive lender who align with strong management teams in growing sectors. Through providing direct loans, mezzanine lenders stand ready to fund the next great generation of UK growth companies. Whether you are seeking financing for a management buyout, an acquisition or a business expansion, a mezzanine lender is a low cost way to build long term equity value.