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Mezzanine Debt can be quite expedient for companies that demonstrate strong cash-flows but lack the necessary tangible assets typically required for securing conventional debt financing. Mezzanine Debt is a form of hybrid capital that has features and characteristics of both debt and equity but is subordinate to all other forms of debt. Mezzanine Debt ranks in the middle of the capital structure between senior debt and equity holders, therefore it is a cheaper form of capital compared to equity. 

 

Mezzanine debt is often ideal for covering funding gaps often needed to complete leveraged buy-outs or buy out an existing shareholder(s). Can also be utilized for growth capital and refinancing purposes.

 

Transaction Size:  $1,000,000 to $50,000,000

 

Structure/Terms:  Typically around 5-7 year maturity, interest only payments for first few years, 10-15% per annum (cash and/or PIK), attachable warrant between 5-20%

 

Criteria:  Profitable companies with strong historical cash-flows, 3-5x EBITDA basis

 

Features:  Unsecured. No personal guarantees. Less expensive than equity. Less dilution. Flexible financial covenants compared to bank debt.