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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
2/16/20

Oil Posts Weekly Gain
Posted on Thursday February 13, 2020

Investor confidence was lifted after China reassured the international community that a huge spike in new coronavirus cases was a one-off event.

Tullow Gets Green Light on Gas-Flaring Request
Posted on Thursday February 13, 2020

The permission will assist heavily indebted Tullow to support production in its offshore fields.

Pemex Ex-CEO Arrest Puts AMLO in Delicate Situation
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The arrest of a former top government official is a breakthrough for Mexico's crackdown against corruption, but it puts President Andres Manuel Lopez Obrador in a delicate spot.

Oil to Flow Again from Saudi-Kuwait Neutral Zone
Posted on Thursday February 13, 2020

Kuwait and Saudi Arabia will resume oil production from their shared fields this month, more than five years after a dispute halted supply.

Asian Traders Get Surprise from Chinese Teapots
Posted on Thursday February 13, 2020

A sudden oil buying spree by China's independent "teapot" refiners has taken Asian traders by surprise.

Coronavirus Could Test Oil Players' Risk and Compliance Plans
Posted on Thursday February 13, 2020

The global coronavirus outbreak could put heightened risk management and compliance plans to the test.

Oil Climbs on Easing Coronavirus Concerns
Posted on Wednesday February 12, 2020

The World Heath Organization rekindled optimism that the coronavirus outbreak could be abating.

Global Oversupply Equals a Tough Year for LNG Exporters
Posted on Thursday February 13, 2020

Demand is insufficient to absorb rising global supplies of this super-cold fossil fuel.

Marathon Cuts 2020 Capital Budget by 11 Percent
Posted on Thursday February 13, 2020

The company's low organic free cash flow breakeven of $47 per barrel will be key in 2020.

Noble Energy Shaves $560MM From CAPEX Budget
Posted on Thursday February 13, 2020

The company is prioritizing free cash flow generation over US onshore growth in 2020.

Wall Street Journal
Commercial News

2/16/20

WSJ.com: US Business

Alstom Reaches Preliminary Deal to Buy Bombardier Train Unit
French train giant Alstom SA has reached a preliminary deal to acquire Bombardier Inc.?s train business for more that $7 billion.

New York Won't Appeal T-Mobile Merger Verdict
New York Attorney General Letitia James said the state won?t appeal a federal judge?s decision to allow T-Mobile US and Sprint to merge, removing another hurdle between the cellphone carriers and their long-planned combination.

SoftBank's Boss Bet $22 Billion on Sprint. It Was a Slog.
For Japanese billionaire Masayoshi Son, a U.S. judge?s recent approval of a merger between Sprint and T-Mobile is long-awaited payback on his $22 billion investment. But it is far from the triumph he sought when he announced he was taking control of Sprint in 2012.

British Airways' Operating Chief and Its Director of People to Leave Carrier
British Airways? chief operating officer and its director of people are leaving the carrier after last year?s tense standoff with pilots, which led to the airline?s first strike in decades

The Ride-Hail Utopia That Got Stuck in Traffic
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How High Should Government Debt Go? Economists Can't Agree
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New Source of Climate Pressure for Companies: Workers
Investors and customers aren?t the only ones pressuring big companies to address climate change?employees are joining in too.

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