Mezzanine Finance Interest Rates – Podcast

What this episode covers

Hardly any question reaches us more often than the one about the interest rate – and hardly one can be answered more dubiously with a single number. In this episode, we classify the realistic ranges and explain why the subordinated interest rate is significantly higher than the bank loan: it compensates for the higher default risk of the subordinated position.

Above all, we show the cost components beyond the nominal interest rate – current interest, capitalized shares (PIK), structuring fees and equity kicker – and how to make offers comparable to an effective annual size.

Key points

• Realistic bandwidths instead of blanket promises.
• All cost components: interest, PIK, fees, equity kicker.
• The seven factors that determine the interest rate (phase, expiration, collateralization, term, exit, sponsor, type of investor).
• How to significantly reduce the interest rate with better collateralization.
• Why “expensive” subordinated capital still pays off the leverage.

The most important lever: negotiating about risk, not about price

Anyone who negotiates only on the interest rate at lenders loses. The result shows that better conditions can almost always be achieved by reducing risk factors – for example, the jump from purely contractual subordination to a subordinated land charge, a more resilient exit or more own funds.

Calculating examples and the complete list of factors can be found in the guide to the mezzanine capital interest rate. Your project-specific condition arises from testing and competition of several suitable lenders.