Mezzanine Finance sits between a Senior lenders First Charge finance and a clients equity.
A Mezzanine facility can be used to achieve a higher level of debt on your project (up to 85% LTGDV and in some cases higher) or fill a funding gap where a client has insufficient equity.
With Mezzanine Finance, the pricing is generally more expensive than Senior or Stretch Senior debt, as the lender is taking on more risk and has less control.
A Mezzanine lender has to first assess the transaction. The First Charge lender will usually provide a Deed Of Priority or Intercreditor Deed. This is where the Mezzanine lender will be able to decide whether this is an acceptable risk. Terms between the First and Second Charge (Mezzanine) lender, on many occasions, can make or break whether the loan is provided.
With our knowledge of our lenders, we can look to combine mezzanine providers with a senior lender where both are happy to work together. This is possible for both investments and developments and is an alternative to a stretched senior facility from one lender.
Even though the mezzanine facility is more expensive debt, it is normally only a small proportion of the overall debt. Once you take into consideration the overall finance costs, the blended rate can be lower than Stretch Senior rates.
Mezzanine lenders normally look for a fixed return and/or a profit participation. Interest can either be paid monthly or capitalised to the loan, and can be compound or non-compounded dependant on the lender.