Dear All,
MEZZANINE FINANCING or MEZZANINE CAPITAL refers to a class of investment that is a stage intermediate between venture capital and an initial public offering; or, subordinated debt or preferred equity instrument that represents a claim on a company's assets which is senior only to that of the common shares and used in leveraged buyouts (LBOs).
Mezzanine financings can be structured either as debt (typically an unsecured and subordinated note) or preferred stock.
Mezzanine capital is often a more expensive financing source for a company than secured debt or senior debt. The higher cost of capital associated with mezzanine financings is the result of its location as an unsecured, subordinated (or junior) obligation in a company's capital structure (i.e., in the event of default, the mezzanine financing is less likely to be repaid in full after all senior obligations have been satisfied). Additionally, mezzanine financings, which are usually private placements, are often used by smaller companies and may involve greater overall leverage levels than issuers in the high-yield market; as such, they involve additional risk. In compensation for the increased risk, mezzanine debt holders require a higher return for their investment than secured or other more senior lenders.
Thanks and Regards,
Pranav Vaidya
Article Assistant
Gokhale & Sathe
Chartered Accountants
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