Mezzanine financing is a flexible long-term financing method for companies and stock recommenders. The dilution of this financing is less than that of the stock market, which can be adjusted according to the special requirements of financiers. So, do you know what mezzanine financing is? The following brings you the significance and conditions of mezzanine financing. Welcome to read!
What does mezzanine financing mean?
Recently, a financing method called "mezzanine financing" has quietly appeared in the market. So what does mezzanine financing mean? Hierarchical financing is an unsecured long-term debt, accompanied by investors' right to subscribe for the rights and interests of financiers. Mezzanine financing is only a kind of subordinated debt, but it is often used as a synonym for subordinated debt. MEZZANINEFINANCE refers to a form of financing between priority debt and equity financing in terms of risks and benefits. Mezzanine investment is also a form of private equity market investment, which is the evolution and expansion of traditional venture capital.
What are the advantages of mezzanine financing?
Mezzanine financing is a very flexible financing method, which is between low-risk senior debt and high-risk equity investment. Its advantages are mainly reflected in the following aspects:
1, Long-term financing with few restrictions: Many medium-sized enterprises in Asia still find it difficult to obtain loans from banks for more than three years. Mezzanine financing usually provides funds with a repayment period of 5 to 7 years. Compared with bank loans, mezzanine financing has fewer restrictions on corporate control and financial contracts. Although mezzanine financing providers will demand the rights of observers, they rarely participate in the daily operations of borrowers and have no voting rights in the board of directors.
2. Adjustable structure. The provider of mezzanine financing can adjust the repayment method to meet the borrower's cash flow requirements and other characteristics. Compared with financing through open stock market and bond market, mezzanine financing can be relatively cautious and rapid on a smaller scale. The equity characteristics of mezzanine financing also enable the company to benefit from lower cash coupon, and in some cases, the company can also enjoy deferred interest, in-kind payment or no coupon options.
3. Investment methods with lower risk than stocks. The level of mezzanine investment is usually higher than equity investment, and the risk is relatively low. In some cases, the provider of mezzanine financing may gain a favorable position in the following aspects, such as cross-default clauses caused by the default of senior debt borrowers, and the first or second priority of company assets and/or shares. The return on equity obtained by "equity incentive" can also be considerable, and the rate of return can be raised to a level comparable to that of equity investment.
What are the applicable conditions of mezzanine financing?
1, the enterprise has a history of steady growth for many years; But it lacks enough cash to expand and acquire;
2. The enterprise is in a growth industry or occupies a large market share; However, the existing bank credit line is not enough to support the development of enterprises.
3. The management firmly believes that the enterprise will have great development in the next few years, and the cash flow and EBITDA (operating income before deducting interest, income tax, depreciation and apportionment) will be positive for at least one consecutive year (the past twelve months);
4. It is estimated that an enterprise can go public and realize a higher stock price within two years, but the current IPO market situation is not good or the company's performance is not enough to realize the ideal IPO, then a round of mezzanine financing can reduce the total financing cost of the enterprise.
Risks of mezzanine financing
1. Because mezzanine financing is a financing mode factor between low-risk priority debt and high-risk equity investment, and it is in the loyalty of the company's capital structure, mezzanine financing generally adopts subprime loans, but mezzanine financing can also be financed through convertible notes or preferred shares, especially if some equity structures can benefit from regulatory requirements or balance sheets.
2. mezzanine financing is a very flexible financing method, but the structure of mezzanine investment is adjusted according to the special requirements of different companies. For borrowers or shareholders, mezzanine financing has the advantages of less restrictions on the adjustable structure of long-term financing and lower cost.
3. The risk of mezzanine financing is relatively low, and there are many exit methods and good liquidity. Compared with most oil stock funds, mezzanine financing returns a large part from the front-end fees and interest income of fixed bonds, which also makes mezzanine financing more liquid than traditional private placement.
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