Some market participants believe that traditional lending
structures offer lower (or at least known or more predictable)
risks for lenders. Traditional mezzanine loan or note
financings, which have declined in popularity among borrowers
in recent years, may be set for a resurgence. Another factor
that points to potential for growth in the demand for mezzanine
financings is the softening in the markets for second lien
debt. This trend was noticeable even before the credit crisis
took hold and has been accelerated by market conditions.
We expect to see a number of stand-alone mezzanine deals in
which the mezzanine debt is the only debt for borrowed money in
the capital structure. However, many mezzanine financings will
be accompanied by senior debt financings. This structure is
attractive both to senior lenders, whose risk is lowered by a
junior tranche of capital that allows the borrower to reduce
the amount of senior debt...