Why would you use mezzanine debt?

Borrowers prefer mezzanine debt because the interest is tax-deductible. Also, mezzanine financing is more manageable than other debt structures because borrowers may figure their interest in the balance of the loan. If a borrower cannot make a scheduled interest payment, some or all of the interest may be deferred.

Why do most companies use a mixture of debt and equity financing?

Debt Financing: An Overview. Most companies use a combination of debt and equity financing, but there are some distinct advantages to both. Principal among them is that equity financing carries no repayment obligation and provides extra working capital that can be used to grow a business.

Which financing is known as mezzanine capital?

In finance, mezzanine capital is any subordinated debt or preferred equity instrument that represents a claim on a company’s assets which is senior only to that of the common shares. Mezzanine financings can be structured either as debt (typically an unsecured and subordinated note) or preferred stock.

Which sectors are suitable for project finance?

Project financing in India is used for both greenfield and brownfield projects in sectors such as:

• Public infrastructure (roads, airports, metro rail and ports, among others).
• Energy (power generation (solar, thermal, wind, hydro), power transmission and so on).
• Construction.
• Manufacturing (cement).
• Education.

Are mezzanine loans secured?

A mezzanine loan is a type of subordinate loan that is indirectly, rather than directly, secured by real property.

Is mezzanine debt secured?

Mezzanine debt is the middle layer of capital that falls between secured senior debt and equity. This type of capital is usually not secured by assets, and is lent strictly based on a company’s ability to repay the debt from free cash flow.

Is convertible a mezzanine debt?

Mezzanine financing usually has equity participation in the form of warrants. A convertible structure allows the lender to convert all or a portion of the principal into equity of the borrower. Convertible debt tends to have lower interest payments but higher equity dilution than a structure with warrants.

What is a debt financing?

Debt finance is borrowed money that you pay back with interest within an agreed time frame. The most common forms of debt finance include bank loans, overdrafts, mortgages, credit cards and equipment leasing/hire purchase.

What types of projects are typically financed with long term debt?

Long-term debt is a commonly used means of financing large capital assets such as infrastructure, buildings, and large pieces of equipment.

Is mezzanine private debt?

Second, since mezzanine debt is provided through privately negotiated transactions, it is far less liquid than more public securities if it needs to be sold. Lastly, middle-market businesses often face greater idiosyncratic risks compared to larger companies.