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Junior Debt/Mezzanine Finance

 

Mezzanine finance, junior or subordinated debt are terms for a tranche of funding that is often secured on a 2nd charge basis behind a senior debt facility to minimise the amount of financial commitment required from an investor or a developer.

 

Where senior debt providers may typically provide up to 70% of the costs of a development project or investment, a mezzanine funder can often provide up to a further 20%, thus reducing the borrower’s contribution to only 10% of costs.  However, as the mezzanine funder’s position ranks behind the senior debt provider, and so carries an increased risk, the cost is higher and can sometimes include requirements for a share in profit or “upside” or be structured on a form of joint venture.

 

The use of and demand for mezzanine finance has increased in recent times due to the lower levels of gearing achievable from senior debt lenders but also due to the lack of liquidity or reduced solvency of developers and investors. 

 

Mezzanine funding is provided by specialist funders and Keppie Massie has access to a number of mezzanine providers with interest in specific sectors and asset types.  Together with our range of senior debt contacts it is also possible to structure some funding packages to include a combination of mezzanine finance and senior debt to as much as 90% of costs.

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