Subordinated debt allows project financings and corporate transactions to gear up more than they would be able otherwise.
Typical Project / Infrastructure subordinated (mezzanine) debt characteristics include:
- Long term, secured debt
- Often no enforcement rights until senior debt is repaid
- Generally amortizes fully over term (although is typically interest only whilst senior debt is outstanding) but bullet structures are possible
- Often has a prepayment premium to capture upside (unlike senior debt)
- Maturity is longer than senior debt
- Buyers of such instruments are e.g. fund managers, debt funds and life insurance funds
Typical corporate subordinated (mezzanine) debt characteristics include:
- 3-7 years secured debt
- Linked to leveraged buyouts, management buyouts or acquisitions
- Bullet principal repayments
- Payment in Kind (PIK) structures
- Maturity longer than senior debt
- Similar buyers