Reasons for using mezzanine capital

The choice to request mezzanine capital has many advantages. However, you need to be patient and wait for a while.

Advantages:

  • It fills a financial gap and provides a capital base to carry out corporate projects
  • Improves the balance sheet structure and therefore solvency (positive impact on the company’s rating and financial margin)
  • Consolidation of financial equity (no dilution of capital or loss of property rights)
  • Interest is tax deductible
  • Flexible credit arrangement
  • Greater entrepreneurial freedom and the right of the lender of the mezzanine capital to intervene

Disadvantages:

  • Higher costs compared to traditional loans
  • In terms of equity, the capital is only made available with a time delay
  • Greater transparency requirements

Characteristics of mezzanine capital

It is worth comparing the properties of mezzanine capital with those of equity or traditional loans. Here is an overview.

Traditional loans

Mezzanine

Equity

 

From an economic perspective

Liabilities

Equity

Equity

From a legal perspective

Liabilities

Liabilities

Equity

Tax implication

Option to deduct debt interest

Option to deduct debt interest

Tax on capital

Investor participation

No direct participation

No direct participation

Direct participation

Duration

4-5 years, fixed term

5-8 years, fixed term

Long term

Security

Guarantee generally

No security

No security

Payment reference

Defined by contract

Not defined

Not defined

Source: Credit Suisse Economic Research

Last modification 20.08.2018

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