Mezzanine Debt & Equity
Mezzanine financing is a hybrid of debt and equity typically used by existing companies to fund an expansion. A mezzanine transaction isn’t aimed at the creation of a long-term shareholder, but rather to provide the investor with a target rate of return to be repaid in a specified amount of time and the optionality to be repaid at the end of the term or choose to convert into shares of the company. An investor has the right to convert debt capital to an ownership or equity interest to provide the investor the opportunity to take advantage of an equity position if business prospects are favorable in lieu of a creditor or preferred investor position.
Mezzanine financing can be transacted at either the operating company or holding company level. The benefits to incurring the debt at the holding company level is that it isn’t typically factored in when assessing the leverage or coverage ratios—so it doesn’t restrict how much a company can borrow. Another benefit is that financing can be procured rather quickly with minimal due diligence on the lender’s part as well as little to no collateral is typically required from the borrower.
Hands-On Expert Accounting Experience At Your Disposal
GBH has hands-on experience with the accounting and tax implications of initiating, transacting, and maintaining mezzanine debt and equity financing. We can help you decide how best to structure the deal and determine the mix of cash interest, payable-in-kind interest (PIK), ownership, and participation payout in order to make it the most beneficial for your organization.
We also conduct audits to provide a clear answer to your financial reporting and determine the best allocation of funds. The mezzanine debt and equity accounting specialists at GBH have a wealth of experience. Contact us today to learn more about how we can apply our knowledge and contribute to the success of your company.