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25:
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1700:
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1038:
291:
In structuring a mezzanine security, the company and lender work together to avoid burdening the borrower with the full interest cost of such a loan. Because mezzanine lenders will seek a return of 14% to 20%, this return must be achieved through means other than simple cash interest payments. As a
385:
to secure supplementary financing for development projects (typically in cases where the primary mortgage or construction loan equity requirements are larger than 10%). These sorts of mezzanine loans are often secured by a second ranking real property mortgage (that is, ranking subordinate to the
236:
interest is a periodic form of payment in which the interest payment is not paid in cash but rather by increasing the principal amount by the amount of the interest (e.g., a $ 100 million bond with an 8% PIK interest rate will have a balance of $ 108 million at the end of the period, but
268:
Mezzanine lenders will also often charge an arrangement fee, payable upfront at the closing of the transaction. Arrangement fees contribute the least return, and their purposes are primarily to cover administrative costs or as an incentive to complete the transaction.
195:
Mezzanine financings can be completed through a variety of different structures based on the specific objectives of the transaction and the existing capital structure in place at the company. The basic forms used in most mezzanine financings are
324:, mezzanine capital is used in conjunction with other securities to fund the purchase price of the company being acquired. Typically, mezzanine capital will be used to fill a financing gap between less expensive forms of financing (e.g.,
220:
Cash interest: A periodic payment of cash based on a percentage of the outstanding balance of the mezzanine financing. The interest rate can be either fixed throughout the term of the loan or can fluctuate (i.e., float) along with
358:; because mezzanine lenders typically have a lower target cost of capital than the private equity investor, using mezzanine capital can potentially enhance the private equity firm's investment returns. Additionally,
1114:
386:
first mortgage lenders). Standard mortgage foreclosure proceedings can take more than a year, depending upon the relationship between the first mortgage lenders and the mezzanine debt lender, governed by an
948:
526:
292:
result, by using equity ownership and PIK interest, the mezzanine lender effectively defers its compensation until the due date of the security or a change of control of the company.
187:; they thus involve additional risk. In compensation for the increased risk, mezzanine debt holders require a higher return for their investment than secured or more senior lenders.
1107:
1021:
128:
and equity in a company's capital structure. It is typically used to fund growth, acquisitions, or buyouts. Technically, mezzanine capital can be either a debt or equity
1100:
519:
470:
595:
404:
303:). In a holding company structure, as there are no operations and hence no cash flows, the structural subordination of the security and the reliance on cash
1081:
512:
993:
264:. The ownership component in mezzanine securities is almost always accompanied by either cash interest or PIK interest, and, in many cases, by both.
179:, the mezzanine financing is only repaid after all senior obligations have been satisfied). Additionally, mezzanine financings, which are usually
815:
810:
718:
42:
108:
1581:
171:
associated with mezzanine financings is the result of it being an unsecured, subordinated (or junior) obligation in a company's
89:
1754:
603:
580:
419:
498:
439:
61:
1494:
1051:
793:
287:
with warrants (0% cash interest, 14% PIK interest and warrants representing 6% of the fully diluted ownership of the company)
280:
with warrants (10% cash interest, 3% PIK interest and warrants representing 4% of the fully diluted ownership of the company)
46:
1640:
474:
1061:
1031:
68:
1434:
1041:
798:
1551:
628:
623:
618:
613:
608:
1739:
1514:
675:
75:
35:
1685:
1670:
1660:
1499:
1314:
885:
835:
773:
733:
680:
284:
1734:
1703:
1680:
1618:
1444:
1369:
1329:
1309:
1071:
988:
983:
300:
277:
57:
1749:
1414:
1404:
1374:
1344:
1284:
968:
963:
918:
209:
183:, are often used by smaller companies and may involve greater overall levels of leverage than issues in the
670:
1655:
1556:
1419:
1257:
1227:
978:
943:
840:
1571:
895:
803:
387:
382:
359:
257:
133:
1593:
1588:
923:
708:
585:
129:
1543:
998:
860:
768:
763:
759:
713:
355:
1713:
1625:
1608:
1566:
1489:
1481:
1267:
1252:
1127:
973:
933:
870:
865:
703:
213:
366:
due to high minimum size requirements, creating a need for flexible, private mezzanine capital.
82:
1645:
1630:
1561:
1504:
1449:
1424:
1394:
1384:
1294:
1277:
1198:
1193:
1148:
1135:
1123:
938:
665:
660:
655:
347:
341:
253:
197:
180:
176:
172:
153:
137:
1603:
1598:
1509:
1464:
1364:
1262:
1183:
1168:
1143:
778:
647:
558:
351:
329:
321:
295:
Mezzanine financings can be made at either the operating company level or at the level of a
261:
1092:
1665:
1576:
1529:
1519:
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1219:
1163:
958:
880:
728:
690:
565:
539:
409:
363:
333:
296:
205:
201:
184:
168:
149:
1613:
1524:
783:
698:
575:
535:
414:
399:
145:
1744:
1728:
1232:
890:
875:
855:
743:
504:
1471:
1319:
1304:
1178:
1003:
928:
900:
845:
738:
160:
141:
140:
that represents a claim on a company's assets which is senior only to that of the
307:
from the operating company introduces additional risk and typically higher cost.
1429:
1399:
1242:
1173:
788:
375:
325:
164:
159:
Mezzanine capital is often a more expensive financing source for a company than
125:
24:
1675:
1635:
1439:
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1237:
1158:
953:
723:
1650:
1409:
1272:
850:
304:
226:
344:
will exhaust other sources of capital before turning to mezzanine capital.
1459:
1354:
1339:
241:
233:
1289:
378:
553:
1188:
337:
249:
222:
272:
The following are illustrative examples of mezzanine financings:
245:
1096:
508:
136:
between senior debt and common stock equity. Mezzanine debt is
354:
in order to reduce the amount of the capital invested by the
18:
156:
or conversion rights, is also a type of mezzanine financing.
216:
made up of any of the following or a combination thereof:
459:
This is an illustrative example based on a real financing
204:. Mezzanine lenders, typically specialist mezzanine
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49:. Unsourced material may be challenged and removed.
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405:History of private equity and venture capital
8:
1022:Private equity and venture capital investors
1709:
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1215:
1115:
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1093:
1057:
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994:Taxation of private equity and hedge funds
811:Private investment in public equity (PIPE)
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527:
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505:
248:, mezzanine capital will often include an
455:
453:
124:is a type of financing that sits between
109:Learn how and when to remove this message
350:will seek to use mezzanine capital in a
431:
7:
381:, mezzanine loans are often used by
47:adding citations to reliable sources
240:Ownership: Along with the typical
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237:will not pay any cash interest).
23:
420:Private equity secondary market
34:needs additional citations for
1495:Debtor-in-possession financing
794:Publicly traded private equity
252:stake in the form of attached
1:
1062:List of venture capital firms
1435:Staggered board of directors
1042:List of private equity firms
799:Business Development Company
362:may be unable to access the
1552:Accretion/dilution analysis
1771:
1515:Leveraged recapitalization
886:High-net-worth individuals
676:Leveraged recapitalization
285:redeemable preferred stock
1694:
1686:Valuation using multiples
1671:Sum-of-the-parts analysis
1641:Modigliani–Miller theorem
1500:Dividend recapitalization
1315:Secondary market offering
1012:
774:Limited liability company
734:Venture capital financing
681:Dividend recapitalization
278:senior subordinated notes
1704:List of investment banks
1619:Free cash flow to equity
1445:Super-majority amendment
1370:Management due diligence
1310:Seasoned equity offering
301:structural subordination
244:payment associated with
1415:Shareholder rights plan
1405:Post-merger integration
1375:Managerial entrenchment
1345:Contingent value rights
1285:Initial public offering
841:Institutional investors
360:middle market companies
175:(i.e., in the event of
1755:Management cybernetics
1557:Adjusted present value
1420:Special-purpose entity
1258:Direct public offering
1228:At-the-market offering
979:Liquidation preference
944:Distribution waterfall
896:Sovereign wealth funds
440:"Mezzanine Fianancing"
276:$ 100 million of
1572:Conglomerate discount
1052:Venture capital firms
804:Venture capital trust
334:high yield financings
283:$ 50 million of
260:similar to that of a
208:, look for a certain
1594:Economic value added
1589:Discounted cash flow
1032:Private equity firms
760:Private equity firms
709:Post-money valuation
586:Equity co-investment
212:which can come from
43:improve this article
1179:Senior secured debt
1082:Portfolio companies
999:Undercapitalization
851:Insurance companies
769:Limited partnership
714:Pre-money valuation
471:"Mezzanine Finance"
469:Mezzanine Finance.
370:Real estate finance
356:private equity firm
58:"Mezzanine capital"
1714:Outline of finance
1626:Market value added
1609:Financial modeling
1567:Business valuation
1490:Debt restructuring
1268:Follow-on offering
1253:Corporate spin-off
1211:(terms/conditions)
1128:investment banking
934:Capital commitment
704:Business incubator
671:Buy–sell agreement
388:Intercreditor Deed
348:Financial sponsors
258:conversion feature
198:subordinated notes
181:private placements
134:repayment priority
1740:Corporate finance
1722:
1721:
1646:Net present value
1631:Minority interest
1562:Associate company
1538:
1537:
1505:Financial sponsor
1425:Special situation
1395:Pre-emption right
1385:Minority discount
1295:Private placement
1194:Subordinated debt
1149:Exchangeable debt
1136:Capital structure
1124:Corporate finance
1090:
1089:
939:Capital structure
824:
823:
666:Divisional buyout
661:Management buyout
656:Financial sponsor
499:Mezzanine Finance
364:high yield market
342:financial sponsor
322:leveraged buyouts
316:Leveraged buyouts
185:high-yield market
173:capital structure
138:subordinated debt
122:Mezzanine capital
119:
118:
111:
93:
16:Aspect of finance
1762:
1712:
1711:
1702:
1701:
1604:Fairness opinion
1599:Enterprise value
1582:Weighted average
1510:Leveraged buyout
1365:Drag-along right
1263:Equity carve-out
1220:Equity offerings
1216:
1212:
1184:Shareholder loan
1169:Second lien debt
1164:Preferred equity
1144:Convertible debt
1117:
1110:
1103:
1094:
1080:
1079:
1070:
1069:
1060:
1059:
1050:
1049:
1040:
1039:
1030:
1029:
1020:
1019:
881:Commercial banks
871:Investment banks
779:Carried interest
644:
547:Investment types
529:
522:
515:
506:
486:
485:
483:
482:
473:. Archived from
466:
460:
457:
448:
447:
436:
352:leveraged buyout
330:second lien loan
262:convertible bond
206:investment funds
114:
107:
103:
100:
94:
92:
51:
27:
19:
1770:
1769:
1765:
1764:
1763:
1761:
1760:
1759:
1735:Bonds (finance)
1725:
1724:
1723:
1718:
1690:
1666:Stock valuation
1661:Residual income
1577:Cost of capital
1534:
1530:Project finance
1520:High-yield debt
1476:
1455:Tag-along right
1380:Mandatory offer
1350:Control premium
1331:
1324:
1300:Public offering
1248:Bought out deal
1210:
1209:
1203:
1130:
1121:
1091:
1086:
1072:Angel investors
1008:
959:High-yield debt
912:financial terms
911:
905:
820:
748:
729:Startup company
685:
639:
633:
590:
542:
540:venture capital
533:
495:
490:
489:
480:
478:
468:
467:
463:
458:
451:
438:
437:
433:
428:
410:Hybrid security
396:
372:
318:
313:
299:(also known as
297:holding company
234:Payable in kind
202:preferred stock
193:
169:cost of capital
150:preferred stock
115:
104:
98:
95:
52:
50:
40:
28:
17:
12:
11:
5:
1768:
1766:
1758:
1757:
1752:
1750:Private equity
1747:
1742:
1737:
1727:
1726:
1720:
1719:
1717:
1716:
1706:
1695:
1692:
1691:
1689:
1688:
1683:
1681:Terminal value
1678:
1673:
1668:
1663:
1658:
1653:
1648:
1643:
1638:
1633:
1628:
1623:
1622:
1621:
1614:Free cash flow
1611:
1606:
1601:
1596:
1591:
1586:
1585:
1584:
1574:
1569:
1564:
1559:
1554:
1548:
1546:
1540:
1539:
1536:
1535:
1533:
1532:
1527:
1525:Private equity
1522:
1517:
1512:
1507:
1502:
1497:
1492:
1486:
1484:
1478:
1477:
1475:
1474:
1469:
1468:
1467:
1457:
1452:
1447:
1442:
1437:
1432:
1427:
1422:
1417:
1412:
1407:
1402:
1397:
1392:
1387:
1382:
1377:
1372:
1367:
1362:
1357:
1352:
1347:
1342:
1336:
1334:
1326:
1325:
1323:
1322:
1317:
1312:
1307:
1302:
1297:
1292:
1287:
1282:
1281:
1280:
1270:
1265:
1260:
1255:
1250:
1245:
1240:
1235:
1230:
1224:
1222:
1213:
1205:
1204:
1202:
1201:
1196:
1191:
1186:
1181:
1176:
1171:
1166:
1161:
1156:
1154:Mezzanine debt
1151:
1146:
1140:
1138:
1132:
1131:
1122:
1120:
1119:
1112:
1105:
1097:
1088:
1087:
1085:
1084:
1074:
1064:
1054:
1044:
1034:
1024:
1013:
1010:
1009:
1007:
1006:
1001:
996:
991:
986:
981:
976:
971:
966:
961:
956:
951:
946:
941:
936:
931:
926:
921:
915:
913:
907:
906:
904:
903:
898:
893:
891:Family offices
888:
883:
878:
876:Merchant banks
873:
868:
863:
858:
853:
848:
843:
838:
832:
830:
826:
825:
822:
821:
819:
818:
813:
808:
807:
806:
801:
791:
786:
784:Management fee
781:
776:
771:
766:
756:
754:
750:
749:
747:
746:
741:
736:
731:
726:
721:
716:
711:
706:
701:
699:Angel investor
695:
693:
687:
686:
684:
683:
678:
673:
668:
663:
658:
652:
650:
641:
635:
634:
632:
631:
626:
621:
616:
611:
606:
600:
598:
592:
591:
589:
588:
583:
578:
573:
568:
563:
562:
561:
550:
548:
544:
543:
536:Private equity
534:
532:
531:
524:
517:
509:
503:
502:
494:
493:External links
491:
488:
487:
461:
449:
430:
429:
427:
424:
423:
422:
417:
415:Private equity
412:
407:
402:
400:Growth capital
395:
392:
371:
368:
317:
314:
312:
309:
289:
288:
281:
266:
265:
238:
232:PIK interest:
230:
210:rate of return
192:
189:
117:
116:
31:
29:
22:
15:
13:
10:
9:
6:
4:
3:
2:
1767:
1756:
1753:
1751:
1748:
1746:
1743:
1741:
1738:
1736:
1733:
1732:
1730:
1715:
1707:
1705:
1697:
1696:
1693:
1687:
1684:
1682:
1679:
1677:
1674:
1672:
1669:
1667:
1664:
1662:
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1657:
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1649:
1647:
1644:
1642:
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1637:
1634:
1632:
1629:
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1620:
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1616:
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1612:
1610:
1607:
1605:
1602:
1600:
1597:
1595:
1592:
1590:
1587:
1583:
1580:
1579:
1578:
1575:
1573:
1570:
1568:
1565:
1563:
1560:
1558:
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1553:
1550:
1549:
1547:
1545:
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1531:
1528:
1526:
1523:
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1518:
1516:
1513:
1511:
1508:
1506:
1503:
1501:
1498:
1496:
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1491:
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1487:
1485:
1483:
1479:
1473:
1470:
1466:
1463:
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1461:
1458:
1456:
1453:
1451:
1448:
1446:
1443:
1441:
1438:
1436:
1433:
1431:
1428:
1426:
1423:
1421:
1418:
1416:
1413:
1411:
1408:
1406:
1403:
1401:
1398:
1396:
1393:
1391:
1388:
1386:
1383:
1381:
1378:
1376:
1373:
1371:
1368:
1366:
1363:
1361:
1358:
1356:
1353:
1351:
1348:
1346:
1343:
1341:
1338:
1337:
1335:
1333:
1327:
1321:
1318:
1316:
1313:
1311:
1308:
1306:
1303:
1301:
1298:
1296:
1293:
1291:
1288:
1286:
1283:
1279:
1276:
1275:
1274:
1271:
1269:
1266:
1264:
1261:
1259:
1256:
1254:
1251:
1249:
1246:
1244:
1241:
1239:
1236:
1234:
1233:Book building
1231:
1229:
1226:
1225:
1223:
1221:
1217:
1214:
1206:
1200:
1197:
1195:
1192:
1190:
1187:
1185:
1182:
1180:
1177:
1175:
1172:
1170:
1167:
1165:
1162:
1160:
1157:
1155:
1152:
1150:
1147:
1145:
1142:
1141:
1139:
1137:
1133:
1129:
1125:
1118:
1113:
1111:
1106:
1104:
1099:
1098:
1095:
1083:
1075:
1073:
1065:
1063:
1055:
1053:
1045:
1043:
1035:
1033:
1025:
1023:
1015:
1014:
1011:
1005:
1002:
1000:
997:
995:
992:
990:
987:
985:
982:
980:
977:
975:
972:
970:
967:
965:
962:
960:
957:
955:
952:
950:
947:
945:
942:
940:
937:
935:
932:
930:
927:
925:
922:
920:
917:
916:
914:
908:
902:
899:
897:
894:
892:
889:
887:
884:
882:
879:
877:
874:
872:
869:
867:
864:
862:
859:
857:
856:Fund of funds
854:
852:
849:
847:
846:Pension funds
844:
842:
839:
837:
834:
833:
831:
827:
817:
814:
812:
809:
805:
802:
800:
797:
796:
795:
792:
790:
787:
785:
782:
780:
777:
775:
772:
770:
767:
765:
761:
758:
757:
755:
751:
745:
744:Venture round
742:
740:
737:
735:
732:
730:
727:
725:
722:
720:
717:
715:
712:
710:
707:
705:
702:
700:
697:
696:
694:
692:
688:
682:
679:
677:
674:
672:
669:
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501:- White Paper
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477:on 2011-05-13
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167:. The higher
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152:equity, with
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148:. Redeemable
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142:common shares
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60: –
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54:Find sources:
48:
44:
38:
37:
32:This article
30:
26:
21:
20:
1656:Real options
1472:Tender offer
1332:acquisitions
1320:Underwriting
1305:Rights issue
1208:Transactions
1153:
1004:Vintage year
929:Capital call
901:Crowdfunding
836:Corporations
739:Venture debt
570:
479:. Retrieved
475:the original
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443:
434:
373:
346:
340:. Often, a
326:senior loans
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161:secured debt
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144:and usually
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41:Please help
36:verification
33:
1430:Squeeze-out
1400:Proxy fight
1330:Mergers and
1243:Bought deal
1174:Senior debt
866:Foundations
789:Pledge fund
581:Secondaries
376:real estate
165:senior debt
126:senior debt
1729:Categories
1676:Tax shield
1636:Mismarking
1440:Stock swap
1390:Pitch book
1360:Divestment
1238:Bookrunner
1159:Pari passu
954:Envy ratio
861:Endowments
724:Seed money
638:Terms and
481:2011-01-04
426:References
383:developers
227:base rates
214:securities
130:instrument
99:March 2023
69:newspapers
1651:Pure play
1544:Valuation
1410:Sell side
1273:Greenshoe
924:Cap table
829:Investors
753:Structure
571:Mezzanine
559:Leveraged
305:dividends
225:or other
191:Structure
146:unsecured
1482:Leverage
1460:Takeover
1355:Demerger
1340:Buy side
974:Leverage
910:Related
640:concepts
394:See also
254:warrants
242:interest
154:warrants
1465:Reverse
1450:Synergy
1290:Pre-IPO
1278:Reverse
1199:Warrant
984:M&A
691:Venture
596:History
566:Venture
379:finance
177:default
132:with a
83:scholar
949:EBITDA
648:Buyout
576:Growth
554:Buyout
338:equity
336:) and
250:equity
85:
78:
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56:
1189:Stock
764:funds
629:2020s
624:2010s
619:2000s
614:1990s
609:1980s
256:or a
223:LIBOR
90:JSTOR
76:books
1745:Debt
1126:and
816:SPAC
762:and
719:SAFE
538:and
311:Uses
246:debt
200:and
62:news
989:PME
969:IRR
964:IPO
919:AUM
374:In
320:In
163:or
45:by
1731::
452:^
442:.
390:.
332:,
328:,
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229:.
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97:(
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