Mezzanine capital

Mezzanine debt or mezzanine financing (derived from Italian: " mezzo" = half ) describes as a collective term financing methods, which are a mix of equity and debt in their legal and economic developments. Here is a company supplied economic or total equity in the classic version, without the investors voting rights or exert influence or residual interest to grant as the real shareholders.

Description

Mezzanine financing is a mixture of equity and debt features. Mezzanine capital is equity-like (known as mezzanine equity ) are given in the form of profit-sharing rights, wertpapierverbrieften NES or silent partnerships. Are possible in addition, convertible bonds and bonds with warrants. Mezzanine capital, which is granted in the form of subordinated participating loan or shareholder loans, on the other hand has a debt nature, and is recognized as a liability in the balance sheet as a rule (so-called mezzanine debt ).

Traditional lenders expect the mezzanine i d to R. economic equity, as it does not detract from the potentially available collateral. This has the consequence that, after introduction of mezzanine capital credit line can be increased, which in turn allows you more mixed funding (see below).

The mezzanine minimum volume of at least 0.5 million euros as a result of compared to traditional lending higher transaction costs ( elaborate examination of the capital taker lack collateral) typically. The more elaborate testing is often done in the form of an external rating and the comprehensive presentation of the mezzanine contractor including multi-year plan. A detailed multi-year plan that includes the date of the proposed repayment mezzanine, is particularly important for growth-oriented companies of great importance. High-growth companies reinvest their cash flows generated so that they are always unavailable for redemptions available.

The design possibilities of mezzanine capital are legally less regulated than, for example, share capital, so that flexible financing solutions are possible, especially in terms of run times (typically between 7 to 10 years), termination rights ( for example, if the mezzanine taker in the sequence a predefined equity ratio falls below ), rate of return, profit and loss provisions or terms of repayment. However, just decide these points, as the invested capital is considered liability and tax law ( equity or debt ). Debt securities, at a public market (stock exchange ) tradable securities ( in Germany, for example, participation certificates ) are subject to prospectus liability and approval by the German Financial Supervisory Authority ( BaFin).

Mezzanine lenders are often private equity firms, banks and specialized mezzanine fund. The mezzanine donor refinance their part largely by debt or rich concentrate the loans granted in the form of securitization to investors.

Importance

Mezzanine financing gained mainly by the ever more cautious lending by banks by Basel II in particular in SMEs are increasingly important. The higher interest-bearing mezzanine is ideally complemented by low interest-bearing conventional loans. Example: The inclusion of mezzanine for example in the amount of € 1 million, the economic equity is correspondingly increased so that additional corporate loans in the amount of € 2 million are represented (mixed funding).

Great importance has its mezzanine financing, particularly in the area of private equity in leveraged buyouts ( leveraged buy- outs ), where there is usually an important component of the capital structure, as it allows from the perspective of investors, to keep the equity commitment low.

During the year 2006, the so-called refinancing program mezzanine products, several bundled in a portfolio of mezzanine financing was difficult in Germany. The reasons for this, the economic upturn, which brought a decline in demand of such financing with them, market saturation, and, not least, liquidity shortages during the financial crisis from 2007 were identified.

Accounting

Accounting HGB

In the HGB accounting is based as usual on the prevailing principle of prudence. Thus, an accounting in equity is only possible if the capital provided has a " sufficient " Liability quality. This is only given if the following four conditions are met (1994 levels):

1 subordination:

2 loss participation to full height:

3rd payment depends on:

4 long-term nature of the capital investment:

Accounting IFRS

In international accounting under International Financial Reporting Standards ( IFRS), formerly International Accounting Standards ( IAS), will be allocated to equity or debt due to the actual contract. The tendency, IAS 32 - Financial Instruments: Disclosure and Presentation (Financial Instruments: Disclosure and Presentation ), but rather an assignment to loan capital, which can lead to high earnings volatility.