In reviewing the searches that bring readers to this blog, I have noticed an increased interest in mezzanine debt. I wrote about "mezz" in one of my earliest posts and that post ranks high in the Google results. Now the increase in searches could just be a few college professors asking for a paper on mezzanine debt, but I prefer to think that as the economic crisis continues more and more businesses are looking at new alternatives for financing.
Throughout the crisis, capital availability through mezzanine debt and equity has been much greater than any of the senior debt alternatives. The reasons for the greater availability of mezz and equity are several.
- These types of financing price in higher returns, which makes it easier to take on the higher risks associated with the economic crisis.
- Mezzanine debt and equity to a lesser extent has always been characterized by a flexibility to match the unique cash flow requirements of the borrower/company, which again helps in the current situation
- Mezz and equity investors are not concerned with collateral for their financing, which gives them much more flexibility than a commercial bank or a factor
The flexibility in mezz terms, the long repayment schedules and the sophistication of the lenders make this alternative attractive in good times and especially in difficult market conditions.