mezzanine financing

Mezzanine financing

The next stage of financing that follows venture capital financing.

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mezzanine financing

High-yield debt issued in connection with a leveraged buyout.

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Mezzanine Financing

A type of debt financing whereby a company issues debt that the holders may convert into equity if the debt is not repaid in due course. This debt carries a high interest rate, as there is little or no collateral, but it is low-risk compared to other forms of debt financing because of its convertibility. Mezzanine financing is listed on a company's balance sheet as an asset; some companies use mezzanine financing because it makes it easier for them to obtain financing from other sources. Mezzanine financing is sometimes associated with leveraged buyouts.

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mezzanine financing

A hybrid of debt and equity funding.Usually shortened to “mezz financing.” The provider loans money on a second or even third mortgage basis and may either take an ownership interest in addition or may reserve the right to take over an ownership interest if the loan is not paid on time and in full.The loans are generally extended in emergency situations, such as to buy property quickly before bank lending can be arranged, or to engage in expansion activities and “grow” a company out of a cash crunch that is preventing it from securing a conventional loan. Because of the subordinate nature of the debt,the risky nature of the activities being funded by the money, and the lack of time to perform due diligence, mezz lenders usually want a high return on their money,in the 20 to 30 percent range.

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Mezzanine Financing

What Does Mezzanine Financing Mean?

A hybrid of debt and equity financing that typically is used to finance a company's expansion. Mezzanine financing is basically debt capital that gives the lender the right to convert to an ownership or equity interest in the company if the loan is not paid back in time and in full. It generally is subordinated to debt provided by senior lenders such as banks and venture capital companies. Since mezzanine financing usually is provided to the borrower very quickly with little due diligence on the part of the lender and little or no collateral on the part of the borrower, this type of financing is priced aggressively, with the lender seeking a return in the range of 20 to 30%.

Investopedia explains Mezzanine Financing

Mezzanine financing is advantageous for financing because it is treated like equity on a company's balance sheet and may make it easier to obtain standard bank financing. To attract mezzanine financing, a company usually must demonstrate a track record in the industry with an established reputation and product, a history of profitability, and a viable expansion plan for the business (e.g., expansions, acquisitions, an IPO).

Related Terms:
• Capital Structure
• Due Diligence—DD
• Subordinated Debt
• Coefficient of Variation
• Initial Public Offering—IPO
• Venture Capital