What is Mezzanine?
Mezzanine capital like debt earns an interest rate, can be secured by the assets of the company (generally on a second lien basis) and has a loan agreement that looks similar to that of bank debt. Like equity, which is longer in term, mezzanine capital has minimal or no scheduled principal payments until the due date and, in some cases, has equity participation. The Uses of Mezzanine As the name suggests, mezzanine capital fills the gap between what the senior bank is willing to lend, the available equity and the total need for the transaction. Mezzanine capital is commonly used to finance acquisitions, but it can also be used to support organic growth opportunities or pay dividends to shareholders. The amount of mezzanine available for each deal is more an art than science. To determine the maximum debt capacity of a company, issuers and investors will consider a ratio of Total Funded Debt to EBITDA of 4.0 as a reasonable starting point. But, one must not look at this ratio in a vacuu
