Mezzanine Financing (subordinated debt)
Generally, mezzanine financing (subordinated
debt with warrants to purchase common stock)
provides a financing alternative to companies
with limited senior debt capacity and is substantially
less dilutive than venture capital or other sources
of equity. This use of proceeds may be for growth
expansions, strategic acquisition, management
or leveraged buyouts, or recapitalizations.
Subordinated loans are subordinated in their
rights to receive principal and interest payments
from the borrower to the rights of the holders
of senior debt and second lien debt. The risk
profile of senior subordinated debt is high,
which permits the senior subordinated lender
to obtain higher interest rates and warrants
to purchase a greater portion of the borrower's
stock or additional interest income.
Loan size:
$500,000 to $3,000,000
Advance:
Dependent on Cash Flow
Structure:
5+ Year Term, Flexible
Amortization
Equity-Type Participation:
Typically required
Senior Debt Financing
Using the assets
and cash flow of
the underlying
business as collateral,
a business typically
uses senior debt
to cover a substantial
portion of the
funding needed
to operate.
Senior loans are exposed to the least risk of debt
because they command a senior position with respect
to scheduled interest, principal payments, and collateral.
However, unlike senior subordinated and junior subordinated
loans, these senior loans typically do not entitle
the lender to obtain any stock or warrants to purchase
stock of the borrowers. As such, senior loans generally
do not participate in the equity appreciation of
the value of the business.
Loan
size:
$1,000,000
to $3,000,000
Advance:
Dependent on Cash
Flow and Assets
Structure:
5+ Year Term, Flexible
Amortization
Collateral:
First Lien on Assets
Equity
Participation:
None
Waterside Capital
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