Mezzanine Finance Explained

In: Business and Management

Submitted By registereduser08
Words 1795
Pages 8
Mezzanine Finance by Corry Silbernagel Davis Vaitkunas Bond Capital With a supplement by Ian Giddy

Mezzanine Debt--Another Level To Consider
Mezzanine debt is used by companies that are cash flow positive to fund: further growth through expansion projects; acquisitions; recapitalizations; and, management and leveraged buyouts. When mezzanine debt is used in conjunction with senior debt it reduces the amount of equity required in the business. As equity is the most expensive form of capital, it is most cost effective to create a capital structure that secures the most funding, offers the lowest cost of capital, and maximizes return on equity. Mezzanine debt has been around for over 30 years, however its use in Western Canada and the Pacific Northwest is relatively new and growing. Leading companies in this region are starting to use mezzanine debt to fund the growth today that the chartered banks will not fund until tomorrow.

What Is Mezzanine Debt?
Mezzanine debt capital generally refers to that layer of financing between a company's senior debt and equity, filling the gap between the two. Structurally, it is subordinate in priority of payment to senior debt, but senior in rank to common stock or equity (Exhibit #1). In a broader sense, mezzanine debt may take the form of convertible debt, senior subordinated debt or private "mezzanine" securities (debt with warrants or preferred equity).
MEZZANINE FILLS THE GAP BETWEEN SENIOR DEBT AND ASSET BASED LENDING, AND EQUITY

SENIOR DEBT & ASSET BACKED (STRETCH) LENDING

SENIOR SUBORDINATED DEBT

CONVERTIBLE SUBORDINATED DEBT

MEZZANINE MEZZANINE

REDEEMABLE PREFERRED STOCK

EQUITY

Source: FitchRatings

Exhibit 1

Mezzanine capital is typically used to fund a growth opportunity, such as an acquisition, new product line, new distribution channel or plant expansion, or in private business’ for the…...

Similar Documents

Gary Gilmore's Behavior Explained

...12/10/08 Opinion Paper 3 I believe that it is obvious that Gary Gilmore’s behavior is best explained by Hirshi and Gottfredson’s General Theory of Crime. There are several facts about Gary Gilmore’s life that fall under the trends described in the General Theory of Crime. One fact includes Gary having a very hard childhood where his dad would beat him and his mom. Another fact about Gary was that he had low-self control and acted impulsively. He would commit several crimes randomly and excessively. These are only two of the common symptoms Gary has that are found in all criminals according to the General Theory of Crime. Hirshi and Gottfredson explain in their theory that self-control is a major attribute that factors into the likelihood of committing criminal acts. They specifically say that low-self control is attained as a direct result of bad parenting. Bad parenting includes the inability to care for the child, the inability to recognize deviant behavior, and the inability to punish or correct deviant behavior. They also say that self-control is a stable trait is usually set by age 8. Gary’s family moved around a lot and switched homes when he was young. Also, Gary’s first 8 years of life were harsh because of an abusive father. His father drank a lot and would abuse the rest of his family. Gary would get the worst abuse out of the children. Gary’s father did not only physically abuse him, he would verbally abuse him too which most people would agree could cause......

Words: 586 - Pages: 3

Finance

...Brealey−Meyers: Principles of Corporate Finance, Seventh Edition Front Matter Preface © The McGraw−Hill Companies, 2003 PREFACE This book describes the theory and practice of corporate finance. We hardly need to explain why financial managers should master the practical aspects of their job, but we should spell out why down-to-earth, redblooded managers need to bother with theory. Managers learn from experience how to cope with routine problems. But the best managers are also able to respond to change. To do this you need more than time-honored rules of thumb; you must understand why companies and financial markets behave the way they do. In other words, you need a theory of finance. Does that sound intimidating? It shouldn’t. Good theory helps you grasp what is going on in the world around you. It helps you to ask the right questions when times change and new problems must be analyzed. It also tells you what things you do not need to worry about. Throughout this book we show how managers use financial theory to solve practical problems. Of course, the theory presented in this book is not perfect and complete—no theory is. There are some famous controversies in which financial economists cannot agree on what firms ought to do. We have not glossed over these controversies. We set out the main arguments for each side and tell you where we stand. Once understood, good theory is common sense. Therefore we have tried to present it at a commonsense level, and we have......

Words: 313404 - Pages: 1254

Rfc Explained

...RFC Explained Keith Stellmach 7/14/2013 DeVry University First we should start with an explanation of what an RFC is, an RFC or Request for Comments is a formal document in which contains technical information about the internet. RFC’s include specifications, policies, internet standards and organizational ideas. The Organization that produces these documents is the IETF or the Internet Engineering Task Force and more specifically a small group of people called the Internet society on behalf of the IETF. The RFC’s have a long history and were first created in 1969 as working notes for ARPAnet, since then the RFC database has grown significantly with a multitude of the earlier publications becoming outdated. For the first 29 years of publication, The RFC database was edited and monitored by Jon Postel until his death in 1998. Now that we know a little about RFC’s, let me elaborate on a few topics, lets divulge into what an internet draft is, a little about the IETF, and finally what the process is to produce an RFC. An internet draft is basically a working document used by the IETF. During the creation of a new RFC, draft versions are created and made available so that the public can view it. Doing this, peers and others in the industry can review these drafts and comment on them whether they are commenting on what can be changed or on what they think of the new publication, it gives the editors some new ideas and ways to improve or change the new documentation......

Words: 606 - Pages: 3

Maslow’s Hierarchy of Needs Explained

...Psychological Needs Paper: Maslow’s Hierarchy of Needs Explained Jeff Bivins PSY/211 July 26, 2013 Annie Fongheiser Psychological Needs Paper: Maslow’s Hierarchy of Needs Explained Albert Maslow (1908-1970) was humanistic psychologist who wrote a paper titled “A Theory of Human Motivation” in 1943 that theorized human behavior is motivated by a hierarchy of needs (Cherry, n.d.). Maslow theorized that there were five levels of human motivation of needs and each need had to be fulfilled in order to move up to the next level of needs. Although Maslow never used a pyramid to show the different levels of his hierarchy of needs the pyramid is commonly used in text to visually describe the different levels of Maslow’s hierarchy of needs. Maslow contended that our basic physiological needs for survival (air, water, food, and sleep), is the most important part of the hierarchy of needs, and all the other levels of the hierarchy would fail and could not progress without meeting these basic needs. This level of hierarchy would be represented at the bottom of the pyramid. Once the basic physiological needs were met safety and security were the next level of Maslow’s hierarchy. Maslow maintained that financial and personal security, shelter, health and well-being, and resources are essential to progress to the next level in the hierarchy of needs. Safety and security would be represented on the pyramid right above the physiological needs. After......

Words: 830 - Pages: 4

Luotang Power: Variances Explained

...9-913-533 JANUARY 29, 2013 ROBERT SIMONS CRAIG CHAPMAN Luotang Power: Variances Explained Introduction As soon as Tan Min Yi received the 2011 Report of Operations for the Luotang Power Company, he called company Controller Fiona Zhu and Sales Manager Ricky Wang into his office to discuss the results. Tan was general manager of the Luotang Power Company, a 600 Mega Watt (“MW”)1 coalfired power plant, located in Hubei Province, China. He was scheduled to make a presentation to the Board of Directors of his parent company, China Hua Tong Power (“HT Power”), the following week about the most recent results and was concerned about their reaction to the disappointing results.2 Tan knew his company had performed well during the year. Both plant availability3 and fuel economy had improved over the previous year. Additionally the plant’s primary customer, the Hubei Provincial Power Company (“HPPC”), had met its contractual electricity purchase obligations for the year. However, there had been limited opportunity to sell energy above the contractual minimum, either to HPPC or others. Still, Tan felt that these factors were outside his control. His team had performed well—it just didn’t show up in the financial results. The scheduled presentation to the Board was important for two reasons. First, HT Power was considering a 2,000 MW expansion at Luotang. However, on a more personal note for Tan, he had been general manager of Luotang since 2002, and he hoped it would be time......

Words: 3495 - Pages: 14

Finance

...The Financial Detective Friday, April 17, 2009 Health products On the basis of trade receivables , inventories, fixed assets, payables , income and the ratio of inventory turns , it seems that Company A is more important than company B. Company A received so little a budget for research and development more important. Company B would be another commercial basis by a diverse mass production sold in supermarkets . First on trade receivables , we see that Company A owns a third more than Company B ( 12% A and 8% B). This difference can be explained by the fact that pharmaceutical products are sold in supermarkets B . However , in the vast majority of distribution a customer pay in cash, but the problem and whether supermarkets quickly reverse the revenue to the company B. The rotation of customer receivables , confirmed that company A has time shorter than company B. payment We note with income statements of the two companies , that B has less stock that Company A ( 7% A and 5% B). This suggests that company B test up to approach the "zero stock " and that it therefore work just in time to optimize its performance more than Company A. Although the difference is that here two points. These are businesses large inventory change. Payables of Company A are more important than company B ( 9% A and 2% B). This difference may result in a different production. Indeed the company A which favors the search for new products to appeal to different components constantly and...

Words: 2403 - Pages: 10

Criminal Justice System Explained

...Criminal Justice System Explained Our book clarifies that crime is defined as “conduct in violation of the criminal laws of the state, the federal government, or a local jurisdiction, for which there is no legal acceptable justification or excuse” (Schmalleger, 2011). There is really no clear definition on what crime is in today’s criminal law. It is an unlawful act, and has many faces. It can be violent when we are talking about murder; it can be non-violent, when we identify it as white-collar crime. Overall, crime is always harmful. It harms the society and the people that live within the society directly or indirectly. To determine which acts are crimes, one must look into the different viewpoints. From a legal standpoint, a crime can only be committed if there is an existing law in place that can be violated, otherwise any behavior is legal, no matter how shocking. Which leads us to laws that are rules and regulations that society put in place to be followed by everyone that has the intent to live within that society. A crime is the violation of these laws and regulations, which will be not tolerated and punished by society thru justice and the system that has been put in place. Derek Cornish and Ronal d Clarke suggested in their rational choice or decision theory that Human beings will commit a particular act because it is of relevance to them. In other words, the act produces more profit than damage consequently the action is done. (Hagan, 2010). Within the......

Words: 771 - Pages: 4

Finance

...WRITTEN REPORT IN FINANCE 2 Punzalan, Joyce Ann M Prof. Ian Tianero BSBA-Management SPECIAL CREDIT FROM SUPPLIERS There are some manufacturing companies that obtain assistance from their customers in the form of payments in advance for goods ordered. There are some cases that suppliers grant long terms of payments on goods that they delivered to their customers. There are privilege specially to the customers who will purchase more goods on them, it is also a competition to those manufacturing company which have the same product. Long terms of payment on goods delivered can be a device to increase the volume of sales of the manufacturing company. TRADE ACCEPTANCE “A written order for a sum of money originating with a creditor and naming a debtor, customarily forwarded to a bank for a collection” It is a time draft drawn in the seller of goods on a buyer, in a trade acceptance the buyer is the acceptor. It is a bill of exchange for the amount of a purchase drawn by the seller on the purchaser, bearing the purchaser signature and specifying time and place for payment. The promises of payment maybe for 30 to 60 90 day period. If the acceptance is made by a finance company, then it is called a trade acceptance. An example would be a finance company affiliated with a manufacturing company that must make large purchases of parts, either domestically or overseas.  Since a finance company does not necessarily carry the same "comfort" weight as a bank, or in order to......

Words: 1927 - Pages: 8

Raid Explained

...RAID Explained RAID used to stand for "redundant array of inexpensive disks". Today the term has been updated to "redundant array of independent disks". RAID is a way of grouping individual physical drives together to form one bigger drive called a "RAID set". RAID can make many smaller disks appear as one large disk to a server. The RAID set represents all the smaller physical drives as one logical disk to your server. The logical disk is called a LUN, or "logical unit number". Using RAID has two main advantages. Better performance and higher availability, which means it goes faster and breaks down less often. RAID benefits explained Performance is increased because the server has more "spindles" to read from or write to when data is accessed from a drive. Availability is increased because the RAID controller can recreate lost data from parity information. What is parity? Parity is basically a checksum of the data that was written to the disks, which gets written along with the original data. RAID can be done in software on a host, or in hardware on the storage controllers. The server accessing the data on a hardware-based RAID set never knows that one of the drives in the RAID set went bad. The controller recreates the data that was lost when the drive went bad, by using the parity information stored on the surviving disks in the RAID set. There are a number of different ways drives can be grouped together to form RAID sets. The different methods used to group drives......

Words: 639 - Pages: 3

Raid Explained

...RAID Explained RAID used to stand for "redundant array of inexpensive disks". Today the term has been updated to "redundant array of independent disks". RAID is a way of grouping individual physical drives together to form one bigger drive called a "RAID set". RAID can make many smaller disks appear as one large disk to a server. The RAID set represents all the smaller physical drives as one logical disk to your server. The logical disk is called a LUN, or "logical unit number". Using RAID has two main advantages. Better performance and higher availability, which means it goes faster and breaks down less often. RAID benefits explained Performance is increased because the server has more "spindles" to read from or write to when data is accessed from a drive. Availability is increased because the RAID controller can recreate lost data from parity information. What is parity? Parity is basically a checksum of the data that was written to the disks, which gets written along with the original data. RAID can be done in software on a host, or in hardware on the storage controllers. The server accessing the data on a hardware-based RAID set never knows that one of the drives in the RAID set went bad. The controller recreates the data that was lost when the drive went bad, by using the parity information stored on the surviving disks in the RAID set. There are a number of different ways drives can be grouped together to form RAID sets. The different methods used to group drives......

Words: 639 - Pages: 3

Finance

...Gaussian copula with parameter matrix can be written as where is the inverse cumulative distribution function of a standard normal and is the joint cumulative distribution function of a multivariate normal distribution with mean vector zero and covariance matrix equal to the correlation matrix . The density can be written as[4] Credit rating agencies and the subprime crisis From Wikipedia, the free encyclopedia Credit rating agencies (CRAs) — firms which rate debt instruments/securities according to the debtor's ability to pay lenders back — played a significant role at various stages in the American subprime mortgage crisis of 2007-2008 that led to the Great Recession of 2008-2009. The new, complex securities of "structured finance" used to finance subprime mortgages could not have been sold without ratings by the "Big Three" rating agencies — Moody's Investors Service, Standard & Poor's, and Fitch Ratings. A large section of the debt securities market — many money markets and pension funds — were restricted in their bylaws to holding only the safest securities — i.e securities the rating agencies designated "triple-A".[1] The pools of debt the agencies gave their highest ratings to [2] included over three trillion dollars of loans to homebuyers with bad credit and undocumented incomes through 2007.[3] Hundreds of billions of dollars' worth of these triple-A securities were downgraded to "junk" status by 2010,[1][4][5] and the writedowns and losses came to over......

Words: 4676 - Pages: 19

Theories Explained

...Social Process Theories: Theories Explained Transcript Major Principles Frank Williams Professor, University of Houston – Downtown My approach to social process theories is pretty simple. It is – it’s mostly a suyggestion that process means how people come to be deviant, delinquent, or whatever act you ma be talking about. So social process suggests that we’re going to focus on the social aspects of that – the coming deviant, delinquent, whatever we might do in criminology in particular. So we would be talking about things that affect individuals rather than things that affect large groups of people or society in general. They’re not interested in pieces of social structure and how they influence people. So it’s going to be, in one sense, pretty simple things, simple things like attachments one has to another person, so social relationships. And in fact that’s where, if we want to go to social processes in its beginning, that’s where we really start. So relationships with people, relationships with family, which of course if a form of people, too, even relationships you may have in school, those kinds of things. Mostly though it’s – in terms of social we’re going to be talking about language, what gets communicated, um, how people see people and reactions to that and so forth. Intro to Chicago School Frank Williams Professor, University of Houston – Downtown One of the things maybe to begin with would be the work of what we call the old Chicago school.......

Words: 9173 - Pages: 37

Finance

...and the small to medium size firm? The traditional financial manager was generally involved in the regular finance activities, e.g., banking operations, record keeping, management of the cash flow on a regular basis, and informing the funds requirements to the top management, etc. But, the role of financial manager has been enhanced in the today's environment; he/she takes an active role in financing, investment, distribution of profits, and liquidity decisions. In addition, he/she is also involved in the custody and safeguarding of financial and physical assets, efficient allocation of funds, etc. The role of financial manager in case of diversified firm is more complicated in comparison with a small and medium size firm. A diversified firm has several products and divisions and varied financial needs. The conflicting interests of divisional managers make the work of financial manager quite difficult in a diversified firm. ‘…the function of financial management is to review and control decisions to commit or recommit funds to new or ongoing uses. Thus, in addition to raising funds, financial management is directly concerned with production, marketing and other functions within an enterprise whenever decisions are made about the acquisition or destruction of assets’ (Ezra Solomon). Elucidate. All functions, production, marketing etc., require finances. The financial manager supports other functional managers and top management to deploy the scarce resources,...

Words: 1368 - Pages: 6

Sail Frabrics Explained

...SAIL FABRICS EXPLAINED Nylon, Dacron, Kevlar, Mylar, Carbon……….what??? Nylon – Spinnaker Material Nylon is used in spinnakers because of its light weight, high tensile strength, superior abrasion resistance and flexibility. However, it has a low modulus allowing too much stretch to be suitable for upwind sails. Nylon is more susceptible to UV and chemical degradation than polyesters and its physical properties can change due to moisture absorption. Polyester (PET) – Dacron & Mylar Polyethylene terephthalate, the most common type of polyester, is the most common fiber used in sailcloth; it is also commonly referred to by the brand name Dacron. PET has excellent resiliency, high abrasion resistance, high UV resistance, high flex strength and low cost. Low absorbency allows the fiber to dry quickly. PET has been replaced by stronger fibers for most serious racing applications, but remains the most popular sail cloth due to lower price and high durability. Dacron is the brand name of Dupont’s Type 52 high modulus fiber made specifically for sailcloth. Allied Signal has produced a fiber called 1W70 polyester that has a 27% higher tenacity than Dacron. Other trade names include Terylene, Tetoron, Trevira and Diolen. PEN fiber (Pentex) PEN (Polyethylene naphthalate), commonly known by Honeywell's trade name "Pentex", is another kind of polyester fiber, which stretches only 40% as much as standard PET fibers, but about twice as much as Kevlar 29. Because it only......

Words: 1870 - Pages: 8

Elephant Bar- Mezzanine Financing

...Elephant Bar Restaurant: Mezzanine Financing Oday Tillawi Professor Shelly Canterbury Finance 441-001 Spring 2016 03/29/2016 Executive Summary: Elephant Bar Restaurant is a California based company founded by Chris Nancarrow in 1979. The restaurant started as a test concept of Carrow’s Restaurants, a chain of more than 150 full-service restaurants. Elephant bar was sold to W. R. Grace in 1985, and repurchased in 1993. The company aims to differentiate itself through innovative culinary concepts. On a product level, the company provides an “elephant-sized” culinary experience to the customer. In order to support innovation, the menu featured complex dishes that included “one unusual ingredient.” On a store level, the restaurants accentuated an architecturally dynamic African theme that allows customers and staff to scan the area and roam around easily. Early in its years, the company was a child of Saunders Karp and Megrue, LLC (SKM). SKM had invested $15.5 million in Elephant Bar in return for major ownership and control. Specifically, in September 2003, SKM controlled 6,192,411 shares, granting itself a 53.8% ownership stake in E-bar. With this hefty investment, Nancarrow pursued his expansion plans and took E-bar from 12 stores to 23 stores in September 2003. Management has decided that because of the geographic concentration E-bar cultivated, the restaurant is vulnerable to high diversification risk exposure. This type of risk amplified the need to expand......

Words: 3941 - Pages: 16