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Bridging a gap in capital structure with Mezzanine Financing

A bridge takes a lot of materials and tons of stability to make the pieces fit together without falling apart. A weak bridge that undergoes too much pressure will fall into pieces and be useless. It is important that whatever bridge you build, that the structure has a strong foundation and sturdy supports. Mezzanine financing does a very good job at bridging the gap in capital structure.

A mezzanine “bridge” is built from aspects of both subordinated debt and preferred equity. Those are in essence the supports of the bridge. A bridge helps you cross over a physical obstacle that you could not before. Mezzanine is a form of junior debt that bridges the gap between private equity investment and a traditional bank loan. Unlike a bank loan, mezzanine relies upon a business’ fruitfulness and prospective growth. Between all the different bridge materials, steel has the highest and most favorable strength qualities. Mezzanine financing offers many similar qualities to steel. It is unsecured and commands a longer term senior debt. On a company’s capital structure, mezzanine financing is slated between common equity and senior debt. Different than senior debt, mezzanine financing is not a first lien against the business’ assets and it is rarely collateralized.

The benefit of a bridge is it allows people to cross over an obstacle, such as a body of water, valley, or road, without closing the way underneath. Like a suspension bridge, mezzanine allows a company safe passage over a gap, on its way to green field of plenty. The longer the span and the greater the pay off on the other side, the more valuable mezzanine is. Without it, a company would not be able to get from point A to point B. With tightfisted banks and return thirsty investors, it’s difficult for a company to bring in the right capital solution to ensure safe passage. Mezzanine has many times played the role of the bridge, carefully balancing the company’s need for stability with the lenders need for security.

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