Mezzanine debt is a flexible financing alternative for companies that have reached the limit on bank borrowing capacity and prefer not to issue new equity. It is one of the least known financing alternatives and reputable financial advisors, accountants and lawyers use it selectively to assist their clients. Mezzanine debt is typically subordinated debt or convertible subordinated debt.
Mezzanine debt offers several distinct advantages:
- increased debt capacity
- additional borrowing capacity above bank limits
- capital available in "down" markets, recapitalizations and turnarounds
- flexible structure
- flexible terms to better match borrower requirements and business risks
- financing with little concern for collateral
- long term, fixed rate structure
- less equity dilution
- lower cost capital with less equity dilution
- equity-like benefits to senior lenders with less shareholder dilution
