What is mezzanine debt?

In the financial world there are many concepts that, like it or not, we must at least know. One of them is the mezzanime debt or also known as "intermediate debt".

Mezzanime capital is designated as debt with a high financial risk, the repayment of which is subject to senior debt. The most common is that this type of financial product is valued as a bond in the medium term with leveraged or bonus shares (which may be warrants or financial assets of the same characteristic). The bond can have the structure of payment in cash or in kind, so this debt is paid with additional debt.

Mezzanime debt is used to cover with financing gaps created by the company, due to its own evolution. These gaps come from 3 main reasons: the initial money that was assigned to the company has been exhausted (venture capital); capital lends more money than lenders are willing to pay; and to complete a leverage buyout operation (converting a public company into a private company by financing all its shares).

This type of debt is especially used by companies in a middle market with a capitalization bursátil which is around 2 and 200 billion. His main use of the money he raises through this product is to be able to reach higher-powered companies and get to their level.

Typically, to make this debt even more attractive, the debt is usually traded at a better price than high-yield bonds. In this way, the investor capable of paying them and trusting in them gives the company freedom to make it necessary.

These bonds are usually much more liquid than others that are offered, which make them more attractive for the most daring. Of course, it increases the risk of capital.

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