Mezzanine Financing in the Current Market Landscape

Mezzanine financing can be a useful financing tool when a company has a borrowing need that exceeds what they can borrow on a senior debt basis, and is a less dilutive alternative to an equity raise.

Watch Managing Director Eric Seward and Managing Director Stephen Szejner discuss:

• When it makes sense to use mezzanine financing
• Why the current market conditions are attractive for mezzanine capital; and
• Recent transactions

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When does it make sense to use mezzanine financing?

Eric Seward: It makes sense to use mezzanine for a variety of transactions from shareholder buyouts, recapitalizations, acquisitions, and growth financing. It's a flexible part of the capital structure that's often used when you've maxed out what you can do on a senior debt basis.

Why are current market conditions attractive for mezzanine capital?

Steve Szejner: Current market conditions are attractive for mezzanine capital for a few different reasons. One would be the senior credit markets have tightened up significantly over the last three to six months. Whether it’s the bank financing market, the broadly syndicated loan market, or the direct lending and private credit markets, senior debt availability for borrowers has been reduced and tightened up, so mezzanine is increasingly needed to fill the gap in the capital structure. When there's less available senior debt and a company still has a borrowing need, mezzanine can be an attractive form of capital to help fill that gap in a less dilutive alternative to an equity raise or issuance.

Recent transactions?

Eric Seward: We've had a remarkably active year in 2022 and expect our overall investment volume to be a record pace this year and it's driven by a variety of types of transactions and financing partners. We're very active in both non-sponsored and sponsored transactions. Oftentimes for non-sponsored transactions, we're providing transformational capital whereby mezzanine financing is being used to facilitate a management buyout, a shareholder buyout, or some sort of recapitalization. On the sponsor side, we're partnering with sponsors for traditional LBO financing as well as M&A activity and bolt-on add-on transactions. Given the lack of depth in the senior market in recent months, we expect that to continue in 2023 and beyond.