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MEZZANINE FINANCING

Looking for the best mezzanine loan? Ocean Pacific Capital is a leader in providing all types of mezzanine programs. Whether mezzanine purchase, mezzanine refinance, or mezzanine construction, our mezzanine department offers a wide variety of options. Particularly in today's tight senior debt market, mezzanine is an increasingly important capital option for growing companies. We provide the best mezzanine financing from $1,000,000.00 to $1,300,000,000.00. If you are looking for a commercial mezzanine conduit, or construction mezzanine financing in California, or any other state, with good or bad credit, we can help you find the mezzanine program that meets your unique and individual needs.

A mezzanine loan is a relatively large, unsecured loan (a loan that is not backed by a pledging of assets) with a maturity of at least five years. The loan carries a detachable warrant (the right to purchase a certain number of shares of stock or bonds at a given price for a certain period of time) or a similar mechanism to allow the lender to share in the future success of the business. Mezzanine loans are dependent on cash flow for repayment.

Mezzanine loans are similar to second mortgages, except that mezzanine loans are secured by a percentage of ownership of the project, a 2nd T.D. that owns the property, as opposed to the real estate. If the company fails to make the payments, the mezzanine lender can foreclose on the stock in a matter of a few weeks. If you own the company that owns the property, you control the property. Therefore, a mezzanine loan is secured by the stock of a company, which is personal property and can be seized much faster. Mezzanine loans are large. It is hard to find a mezzanine lender who will thoroughly read through all of the required paperwork for a loan of less than $5 million. Typically, mezzanine lenders typically prefer big projects.

Furthermore, a mezzanine loan, as John C. Murray explains in his article entitled "The Mezzanine Financing Endorsement," is "a result of the increased securitization of real estate and the packaging of pools of loans for sale into the secondary market, mezzanine financing has become very popular in recent years. Mezzanine financing (or, perhaps more appropriately, mezzanine capital) fills the gap between the first mortgage financing, which usually has a loan-to-value ratio of forty to seventy-five percent, and the equity participation of the principals of the borrower, which is usually no more than ten percent of the cost of the project.

Mezzanine financing commonly supplies financing of ten percent to fifty percent of the project's capital structure cost. This type of financing can take several forms. Most commonly, it involves extending credit to the partners or other equity holders of a borrower and taking a pledge of such parties' equity interests (including the right to distributions of income). Alternatively, the lender may take a preferred equity position, which is entitled to distributions of excess cash flow after debt service, ahead of the borrower's principals. A "combination" loan structure may also be used to combine a first mortgage loan with mezzanine financing at an aggregate loan-to-value ratio of ninety to ninety-five percent. This type of structure may contain a shared appreciation or contingent feature, an exit fee paid by the borrower, or sometimes, both.

The borrower in a mezzanine loan is often an LLC, and the equity participant in the borrowing entity is frequently itself an LLC. In those situations where the mezzanine lender is taking a pledge of some or all of the equity interests in one or more of these entities in connection with the mezzanine loan, the lender may look to the title insurer for special forms of title-insurance coverage. The lender may seek some form of non- imputation coverage, i.e., assurance that the title insurer will not deny coverage under the owner's policy based on matters known to the borrowing entity (or its members) being imputed to the lender. Copies of endorsements offering this type of coverage are attached hereto.

Title underwriters may require an affidavit and an indemnity agreement from the existing LLC members, and from the mezzanine lender when it exercises its foreclosure rights under the pledge and succeeds to an ownership interest in the mezzanine borrower. These affidavits and indemnity agreements will state that the respective parties have no knowledge of any fact that will affect the coverage under the policy, and will hold the title insurer harmless for losses resulting from its reliance on such affidavits and indemnities. The title insurer may also require, and review, financial statements from all relevant parties in order to achieve a comfort level for relying on the aforementioned indemnity. The attached endorsements state that (as agreed to by the insured and its equity members) all payments for loss under the policy will go directly to the mezzanine lender, and that there will be no denial of coverage as the result of the transfer of any of the LLC membership interests to the mezzanine lender.

The endorsements further provide that the title insurer waives its right of subrogation and indemnity against any of the insured owner's equity owners until the mezzanine loan is paid in full. If a loss occurs under the policy, the amount paid by the title insurer is limited to the actual loss less a percentage thereof equal to the percentage of LLC membership interests not owned by the mezzanine lender at such time. If the loss occurs before the mezzanine lender's acquisition of the insured owner's membership interests, the mezzanine lender is not required first to pursue its remedies against other collateral. However, the title insurer's liability in any event is limited to the amount of the mezzanine loan, and the title insurer is entitled to credit for any amount paid out under a simultaneous loan policy.

The title insurer is also entitled to reimbursement from payments received by the mezzanine lender from other security. The term "mezzanine lender" can be defined to include the owner of the mezzanine loan and each successor in interest in ownership of the mezzanine loan, and include any subsidiary or affiliate entity of the owner of the mezzanine loan.The availability and content of the attached endorsements will vary depending on factual and underwriting considerations, as well as statutory and regulatory restraints in certain states."

ADVANTAGES

  1. Even though the owner loses some independence, he or she rarely loses outright control of the company or its direction. Provided the company continues to grow and prosper, its owners are unlikely to encounter any interference from their lender.

  2. The flexibility of the arrangement is often a big plus; "[mezzanine financing] offers considerably more flexibility to structure coupon, amortization and covenants to accommodate the specific cash flow requirements of the business

  3. Lenders who are willing to enter into the world of mezzanine financing tend to be long-term investors rather than people looking to make a quick killing.

  4. Mezzanine lenders can provide valuable strategic assistance. "Subordinated debt advisors often bring fresh insights to businesses because they are financially sophisticated and have a great deal of experience developing strategies to maximize long-term value," said Levine.

  5. Mezzanine financing increases the value of stock held by existing shareholders, even though they will not have as great an ownership stake.

  6. Most importantly, mezzanine financing provides business owners with the capital they need to acquire another business or expand into another production or market area.


Click here to apply now or for more information please give us a call at 1-800-595-1474 for a free consultation with a specialist on how to obtain the best mezzanine financing for you. To view our recent closings, please visit our commercial loans page.


Whatever your financing needs,
we will tailor a loan that's right for you.

 
 
 



Daily Oil & Gas and Wall Street Journal News
4/23/17

Oil Falls Below $50 as Surging US Output Undermines OPEC Cuts
Posted on Thursday April 20, 2017

Oil dropped below $50 a barrel as investors lost faith.

Baker Hughes: US Drillers Add Oil Rigs For 14th Week In A Row
Posted on Thursday April 20, 2017

US drillers added oil rigs for a 14th week in a row, extending an 11-month recovery.

US Will Not Issue Drilling Waivers To Russia Sanctions
Posted on Thursday April 20, 2017

The US will not make an exception for American companies seeking to drill in areas prohibited by US sanctions on Russia.

Texas Adds Thousands of Oil, Gas Jobs in March
Posted on Thursday April 20, 2017

Thanks in part to increasing crude oil prices and exploration and production activity in onshore basins, Texas adds more than 3,000 jobs in March.

US E&P Budgets Rebound, Grow For First Time Since 2014 Downturn
Posted on Thursday April 20, 2017

US CAPEX and rig counts to drive production growth of 5% this year; drilling and completion spending to increase by 58% this year, according to Fitch Ratings' modeling.

Commodity Weekly: OPEC Rhetoric Fails to Rouse the Bulls
Posted on Thursday April 20, 2017

Oil market faces further downside risk if OPEC does not extend output cuts. Cartel rhetoric staves off lower prices in the meantime.

OGA Urging Industry to Increase Pace of Collaboration
Posted on Thursday April 20, 2017

The UK Oil and Gas Authority (OGA) is urging the industry to increase the pace at which licensees develop a culture of collaboration both internally and externally.

Schlumberger Expects Reactivation Costs To Squeeze Margins
Posted on Thursday April 20, 2017

Schlumberger says a ramp up in drilling activity in North America boosted pricing for its services, but the cost of reactivating equipment idled during the downturn dragged down margins.

Statoil Receives Consent to Drill Well in Barents Sea
Posted on Thursday April 20, 2017

Statoil ASA receives consent to drill an exploration well in block 7219 in the Barents Sea, Petroleum Safety Authority Norway has announced.

Israel's Delek Says Ithaca Shareholders Approve Takeover Bid
Posted on Thursday April 20, 2017

Israel's Delek Group says its offer to take over North Sea oil producer Ithaca Energy has been accepted by Ithaca's shareholders.

Wall Street Journal
Commercial News

4/23/17

WSJ.com: Commercial Real Estate

Office Market Swings in Tenants' Favor
The seven-year expansion in the U.S. office market slowed in many big cities in the first quarter.

Malls Deploy Technology to Lure---and Keep---Shoppers
Mall landlords faced with declining sales and disappearing stores are deploying smartphones, social media and other technology to lure customers?and then keep them spending.

New Shopping Centers, More Than the Web, Kill Old Malls
Internet retailing is eating into mall revenue, but competition from newer shopping centers was the most common cause of death for malls over the past decade, according to a recent study.

Nashville Mall Turns to Madame Tussauds to Draw Crowds
Simon Property Group is hosting the nation?s first Madame Tussauds in a shopping mall, part of the retail landlord?s push to offer customers new experiences that go well beyond shopping.

The New Manhattan Office Trend: Penthouses
The addition of glass-walled office spaces atop older buildings is an investment a number of owners are making in hopes of boosting income and competing with newer office buildings in Manhattan.

One Kings Lane to Open Physical Store in Southampton
Online home décor and furniture retailer One Kings Lane will open its first brick-and-mortar store in Southampton this Memorial Day weekend, as the company repositions itself from a flash-sale e-commerce site to a home furnishings brand.

Two More Retail Tenants Sign Onto Fort Lee's Hudson Lights Complex
Developers of a mixed-use project at the base of the George Washington Bridge in New Jersey have added two retailers to the roster of tenants, filling more than 80% of its shopping complex

BRE #:00619059
Charles Elfsten, President
Charles A. Elfsten
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