One of the main reasons for the growing prominence of mezzanine financing is that it not only generates return from interest payments but also offers equity kickers
, which broadly depends on the deal structuring of each investment opportunity.
Some of the more prevalent tools now include LIBOR floors, prepayment penalties, collateral monitoring fees, equity kickers
, unused commitment fees and restrictions on the availability of capital.
"This was an extraordinary transaction and continues to demonstrate our ongoing ability to create off balance sheet value through our equity kickers
," said Ivan Kaufman, chairman and cCEO of Arbor.
The exemption in the new treaty does not apply to: (1) contingent interest (e.g., payments based on turnover, income, net earnings ("equity kickers
"), cash flow or the financial position of the debtor or a related party); or (2) an excess inclusion with respect to a REMIC; these are subject to the U.S.
Under existing interpretations of law, national banks may--in addition--take so-called equity kickers
as part of loan agreements.
The model is expanded in Sections III and IV in order to allow for a positive probability of default in equilibrium and to examine the role of strip financing and equity kickers. This is done by adding states of nature which result in low cash flows.
Lenders accepting a below-market interest rate on their loans in exchange for equity kickers will find their interest aligned with promoters', if the kickers are sufficiently large.
The higher return on equity necessary to offset the lower return on debt is referred to as an "equity kicker." Let [Pi] be the value of equity transferred to bondholders.
Therefore, with an equity kicker, a strip financing arrangement can be implemented with each lender holding a smaller fraction of the equity than when debt is correctly priced.
, contingent interest, significant deferral
The lender has the safety of a mortgage, albeit subordinated to a first mortgage, and can get higher returns as well as equity kickers
. JLW, working with a large Middle Eastern bank, has put together a fund to make participating loans on U.S.