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With the huge growth in the family office fund landscape, there is not enough discussion about how good a fit these offices are for mezzanine debt. Most family offices are in the business of long-term investing and generation of strong risk adjusted returns. This makes them a perfect fit for mezzanine debt loans.
Many of them already provide these loans though they may not call it mezzanine, but it provides the same level of impact to a borrower as conventional mezzanine debt does.
Family offices are increasingly visible in the mezzanine space for a few reasons. Many private credit funds that go to market as debt funds are in reality closer to structured equity providers, meaning they can write a big check but are charging higher rates. Some private credit funds also skew more toward unitranche structures and have a hard time providing true mezzanine debt behind an existing bank loan.
How Family Offices Structure Mezzanine Debt Differently
Family offices, due to their capital being family provided, can be more flexible in their structure approach. Because they can look at each loan on a one-off basis, they can offer more creative pricing like PIK and exit fees, as well as longer term maturity than unitranche.
They also have more creativity with respect to principal amortization and can accept a full back ended repayment of the loan, which is very important to so many deals in the market.
Also, family offices tend to be more understanding of the different challenges and phases of growth that companies go through. For this reason, they tend to give their borrowers more latitude and have more patience than conventional private credit funds. They are in essence, more founder-company friendly and are able to offer a relationship style of lending that companies thrive under.
Family offices come in all shapes and sizes, and some are mere web sites with little capital behind them. But there are many highly reputable and highly specialized family offices who are great mezzanine debt providers who will flex to give you the deal structure you need, as opposed to the one they want to give you.
