The fundamental characteristics of mezzanine financing benefit companies in a variety of ways, but the value can be largely attributed to it being less dilutive, the flexibility it provides as well as its patient nature.
When raising capital, most business owners strive to minimize the amount of equity they have to give up – mezzanine financing enables them to do this by maximizing total leverage with little to no equity dilution. A mezzanine-led recapitalization typically results in the existing shareholders retaining majority control of the company as well as controlling the board and management.
With mezzanine financing, the investor can provide capital beyond what a bank would typically be comfortable underwriting, thus, providing companies with the flexibility to achieve goals that require capital outside the limits of senior debt.
One of the key benefits of mezzanine financing is that it is patient during times of difficulty. Mezzanine financing is subordinate to the senior debt, from a structural standpoint, and does not usually require any amortization prior to maturity. Mezzanine financing also typically has a 7-8-year bullet maturity. This keeps the senior lenders comfortable as well as gives management the time needed to deal with any issues that arise before having to address that maturity.
Ultimately, mezzanine financing allows business owners to maintain control and fund growth goals or other needs beyond what their senior debt capacity will allow, while serving as a patient piece of capital in the background.
