Mezzanine Funding — Meaning, Need and Types.

Mezzanine Funding - Meaning, Need and Types.

Mezzanine funding is a type of junior capital between senior debt financing and equity. In short, a means that companies can access capital from. Let’s understand its features in detail.

Mezzanine funding can either be defined as a portion of the savings given by private equity, and taking further loans from multiple investors to provide funds for the purchase; or it can be categorised as private equity that come from company’s own savings and then they further take debt from the company itself to arrange the funding. Hence, in this type of funding there is a risk factor, which is much higher and the expectation of benefits is also high.

Definition of Mezzanine Funding

Mezzanine financing is a mix of debt and equity financing that gives the lender a right to convert it to an equity interest in the company mostly when the capital companies and other senior lenders have already been paid.

Mezzanine debt consists of equity instruments also known as warrants, which increases the value of the other debts and increases the flexibility while dealing with the bondholders. Moreover, Mezzanine funding is associated with acquisitions and buyouts, this can be used to give priority to the new owners before the existing owners, especially in case of bankruptcy.

Example of Mezzanine Debt:

Likewise in 2016, Olympus Partners, a private equity firm in Conn. was funded by Antares Capital to acquire AmSpec Holding Corp, a company that offered inspection, and certification services for petroleum traders.

As the total amount was $215 million, that also included a revolving credit facility, a term loan, and a delayed draw term loan. Antares Capital offered the total capital in the form of mezzanine debt, which acted as an equity option.

Conclusion

In addition to the above points, Mezzanine Funding Services in India are selected if they can be a strong partner that understands the company goals and can prove to be a supportive source for a long term. For both expensive debt and cheap equity, mezzanine funding is a reliable option for companies who are looking for additional capital and cannot afford to sell or lose control.

Original source of this blog : https://www.resurgentindia.com/mezzanine-funding-meaning-need-and-types

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