Does mezzanine debt have covenants?
Does Mezzanine Debt have Covenants? Like with any loan, your agreement will have certain legal clauses, known as event defaults or covenants.
Is mezzanine debt interest only?
Since mezzanine debt typically has a five-year term and is interest-only until principal is due at maturity, it is considered patient capital. The borrower has five years to build its business prior to repaying the debt or replacing it with a lower cost alternative.
How does an Intercreditor agreement work?
What is an Intercreditor Agreement? In a typical scenario, there are two creditors involved in a given agreement – a senior(s) and subordinate (junior) lender(s) Capital stack ranks the priority of different sources of financing. Senior and subordinated debt refer to their rank in a company’s capital stack.
Do I need an Intercreditor agreement?
An intercreditor agreement will generally be needed where there are competing debt interests in the borrower and there is more than one type of secured creditor. Intercreditor agreements are more common on certain kinds of transactions than others.
How do you value a mezzanine debt?
What is the pricing for mezzanine debt? Pricing is usually 10% current pay interest, 2% deferred interest and a small 1to 2% yield enhancement. The yield enhancement usually brings the total return to 13% to 15% all in. The prospective borrower also reimburses the lender for legal and due diligence costs.
How does an intercreditor agreement protect mezzanine lenders?
An intercreditor agreement can also protect the mezzanine lender in case the borrower defaults on its loans. To that end, mezzanine lenders often push for protection against early foreclosure by the senior lender. Therefore, the mezzanine lender will preserve its right to foreclose on the property after taking control of the borrowing entity.
What is a recognition agreement for a mezzanine loan?
Specifically, the agreement gives the mezzanine lender the same foreclosure rights as those of the mortgage lender. Recognition Agreement: This is a subordination, non-disturbance and attornment agreement (SNDA) for a mezzanine loan.
What is the purpose of the Intercreditor agreement?
The intercreditor agreement is negotiated by the first mortgage lender and the mezzanine provider. The purpose of the intercreditor agreement is to outline communication channels and provide guidance between the first mortgage lender and the mezzanine investor.
Can a senior lender participate in a mezzanine financing?
In this case, and especially when the mezzanine financing provider is an experienced real estate investor, the first mortgage lender will often welcome their participation. The depth of experience of a reputable mezzanine financing provider can be advantageous for senior lenders, especially if the borrower defaults.