Mezzanine capital


Mezzanine capital

Mezzanine capital as equity

In order to prevent investors from being granted voting rights, mezzanine capital can be made available to the company in the form of profit participation rights, securitised profit participation certificates or silent participations. This means that the company can be provided with economic or balance sheet equity and the lenders are not granted voting rights like real shareholders.

Mezzanine capital as debt capital or a hybrid form
In the form of shareholder loans or similar funds, on the other hand, mezzanine capital is considered debt capital and usually has to be recognised as a liability on the balance sheet. There are also hybrid forms in which the available capital is included both in the balance sheet equity component and in the debt component.

Silent participation
The capital is made available to you in the form of a silent participation. The funds are not earmarked for a specific purpose and your company is free to use them as it sees fit. A common understanding of further strategic development is, however, required. With this form of participation, the voting rights remain with the company. The term is usually up to five years, or up to 10 years in exceptional cases.

The terms and conditions are fixed, but are also determined by the clients’ earning power .

Equity quality
Mezzanine capital can be provided as what is known as equity mezzanine capital in the form of profit participation rights, securitised profit participation certificates, silent participations or similar arrangements.
The injection of economic or balance sheet equity strengthens the company's equity base without any diluting effect for its shareholders. Mezzanine capital can also take the form of “debt mezzanine” and be structured in the form of subordinated, profit participation loans or shareholder loans.
The fact that mezzanine capital can be structured as equity or debt capital also affects the classification of mezzanine financing forms with regard to risk and return.

Basic principles

  • Extremely flexible design as equity or debt capital
  • Subordinated to other creditors in the event of insolvency
  • Settlement/repayment after 5-8 years
  • Mezzanine fee usually tax-deductible

Financing motivations
  • Strengthening the equity ratio
  • Conventional growth financing
  • Project finance
  • Acquisition financing
  • Succession solutions
  • Management buyout financing

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