What is Mezzanine Capital?
In the world of structured finance, mezzanine capital is an instrument that represents a claim on a company's assets which is senior only to the company's common shareholders. It is often utilized in conjunction with senior debt; it reduces the amount of equity required in a business. It is usually a valuable tool for management seeking to raise capital in the later phases of a company's development and is not suited for start-up financing. Mezzanine capital can be either subordinated debt or preferred equity and is a hybrid form of capital with features of both debt and equity

How Does Mezzanine Capital Work?
Filling the gap between the  senior debt and equity, mezzanine debt has potential to provide higher equity returns to the sponsors. It is also advantageous because the typical desired return by a mezzanine lender is 12% - 25% which is lower than equity, reducing the overall cost of capital for a mature company. Mezzanine debt is provided by lenders who specialize in it as it has very distinctive characteristics.

Mezzanine debt most often includes “equity participation" via warrants, success fees, or options often referred to as “debt with equity kickers”. Equity kickers are important as they align the interests of the mezzanine lender  with those of the business owner. Mezzanine debt generally shares the same covenant requirements  as a bank deal, but the measurement characteristics tend to be less restrictive.

Who Uses Mezzanine Capital?
Mezzanine debt is typically employed by corporations and financial sponsors to finance LBOs, recapitalizations, refinancings, and acquisitions. Typically, mezzanine debt providers will lend up to a multiple of 2.5 to 4.0 times EBITDA and  loan terms  range from 3 to 10 years.

At Cinergy Commercial Capital, we specialize in arranging mezzanine financing from $250,000 to
$20 million.

Contact us today and one of our financial specialists will give you a free analysis of what we can provide for your company.