Back to basics banking

Author: | Published: 1 Dec 2008

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...