What is mezzanine finance?
Mezzanine finance refers to capital which sits behind the first-ranking (or ‘senior’) debt against a business or property but ahead of any equity investment. As this finance is ‘riskier’ than the senior debt (being ‘behind’ in the liquidation queue), the pricing can be significantly higher. This gives investors the opportunity to target a risk/return spread which is lower than an equity investment but higher than senior debt.
At Connection Capital, we employ mezzanine finance as a component of our Private Debt products which are used either for corporate direct investments or to ensure a priority return in residential property development capital. Typically, the cost of the Mezzanine will be expressed as an annual coupon rate and – depending on the deal – this coupon will either be part paid-in-cash or ‘rolled’ to the maturity of the loan.