Mezzanine loses out in private equity deals

Author: Danielle Myles | Published: 28 Sep 2010

Mezzanine finance has suffered in the recovering private equity market. Intercreditor arrangements and stretched senior lending are to blame.

Panelists at IFLR’s European Private Equity Forum last week examined the plight of junior creditors in the wave of recent restructurings and fresh deals. And the clear message was that mezzanine lenders have received no favours from industry guidelines and aggressive senior lenders.

The Loan Market Association’s (LMA) efforts to address the mezzanine-senior lender balance in its standard-form intercreditor agreement has achieved little. Mezzanine lenders were consulted as part of the drafting process. But ten months after its release, commentators say the document is still overwhelmingly pro-senior creditor and the main improvements have come from small changes in its user guide.

“It’s like having a document to protect a chicken coop drafted by a pack of foxes,” said panelist James Davis, investment director with Intermediate Capital. The...