Mezzanine Finance Types

Whatever type of mezzanine financing may be required, the professionals at Remington have the know-how and experience to successfully structure even the most complex commercial transactions and can provide access to the best financing available through its global network of private and public sources of capital. There are several types of mezzanine financing available.

Mezzanine Loans: Mezzanine debt can take many forms and can mean different things to different lenders. The most common and easiest type of mezzanine financing to understand is straight debt, also known as a second mortgage. With straight debt, the mezzanine lender is in a subordinate position, usually up to 85% LTV, with no equity participation in the cash flow and no management participation. Depending on the amount of leverage, the type of project, and owner history, yields typically fall within the 9-13% range, with terms similar to the senior debt.

One of the most important issues for mezzanine borrowers is the interaction between mezzanine and senior debt lenders. An inter-creditor agreement, which spells out the rights and remedies of a mezzanine lender and the interaction between a mezzanine lender and senior lender, is usually required in such transactions. Negotiating an inter-creditor agreement can be a difficult and time-consuming process.

Participating Loans: If higher leverage is the objective of a financing transaction, and borrowers are willing to give up some cash flow or equity for it, a hybrid form of participating debt instrument may be the way to go. With such debt, borrowers can usually boost LTV up to 90%, while lenders generally receive a slightly lower coupon rate on the note and may receive an exit fee when the property sells. Given the increased risk assumed by the lender from the amount of leverage involved, a higher overall yield is required from the combination of the coupon rate and the equity obtained in the transaction.

Hybrid Mezzanine Loans: Another type of mezzanine loan that is becoming increasingly popular is similar to a second mortgage with a major variation. Since many senior debt lenders prohibit second mortgages, this mezzanine loan is secured by the stock held by the company that owns the property involved. If the company fails to make timely payments on this type of mezzanine loan, the lender can foreclose by seizing the stock of the company. If the lender has control of the stock, the lender has control of the company and the property. Oftentimes, foreclosing on a loan secured by stock is much easier than foreclosing on a loan secured by property.

Because of the complex terms, costs and suitability of mezzanine financing, owners, developers and brokers across the country have come to rely on Remington Financial Group for its expert advisory services to help successfully structure such challenging transactions.