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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
11/22/19

US Drops Three Oil Rigs
Posted on Thursday November 21, 2019

U.S. drillers dropped three oil rigs this week, while the gas rig count remained flat, according to data from Baker Hughes Company.

US Frac Sand Supplier Cuts 10% of Workforce
Posted on Thursday November 21, 2019

Frac sand supplier U.S. Silica Holdings, Inc. has cut 230 employees as it grapples with the current challenges in its energy markets.

US Gulf Set for Record 2020 With Oil Production
Posted on Thursday November 21, 2019

The U.S. Gulf of Mexico is positioned for another year of record oil production in 2020, according to Rystad Energy.

$620MM Texas Petchems Project Gets Green Light
Posted on Thursday November 21, 2019

Pictured is a rendering of the alkylate facility Clough is building in Pasadena, Texas. IMAGE SOURCE: Clough

Lack of Credit Is Latest Blow to Shale Industry
Posted on Thursday November 21, 2019

Banks have begun trimming back the credit lines of America's shale producers.

Akastor Appoints New CFO
Posted on Thursday November 21, 2019

Oil services investment company Akastor has appointed Oyvind Paaske as its new chief financial officer.

Labour Pledges Windfall Tax on Oil Companies
Posted on Thursday November 21, 2019

The UK Labour party has pledged a 'windfall tax' on oil companies in its latest manifesto.

Oil Down as Investors Monitor Trade Outlook
Posted on Thursday November 21, 2019

Oil pared its third weekly advance as investors monitor developments in the U.S.-China trade war that has sapped demand.

Oil Prices Surge on Bullish OPEC+ Expectations
Posted on Wednesday November 20, 2019

WTI and Brent crude oil futures showed significant upward momentum Thursday.

NuStar Introduces Open Season for Permian Pipeline Expansion
Posted on Wednesday November 20, 2019

NuStar Energy L.P. has kicked off its binding open season for expansion of its Midland Trunkline within its Permian crude system.

Wall Street Journal
Commercial News

11/22/19

WSJ.com: US Business

Tesla Unveiled a Bulletproof Pickup. Then the Window Broke.
Elon Musk embraced unorthodox design choices with Tesla?s all-electric pickup to wow truck buyers and help differentiate it. But the features he is promising could dent the commercial prospects of the vehicle Mr. Musk has dubbed Cybertruck.

Tech Companies Step Up Fight Against 'Deepfakes'
Big tech companies including Facebook, Twitter and Google have benefited from enabling users to easily share pictures or videos, but they are now working to stem the spread of maliciously doctored content ahead of next year?s presidential election.

Smucker Lowers Sales Outlook
J.M. Smucker Co. said sales in its pet business are dragging, a fresh sign of trouble in a unit the food maker was counting on to help make up for slack packaged-foods demand.

FCC Deals Blow to Huawei and ZTE, Cuts Off Telecom Subsidies
U.S. regulators labeled two large Chinese telecommunications firms a ?national security threat? and voted to ban them from a federal subsidy program, the latest move in a broader push to close them off from U.S. customers.

For 'Frozen 2,' Toy Makers Let It Flow
Hasbro and Jakks Pacific are among the toy makers flooding the zone with licensed merchandise ahead of Walt Disney Co.?s ?Frozen 2,? which opens this weekend.

U.S. Business Activity Shows Signs of Pickup Against Global Slowdown
Business activity in the U.S. is offering signs of a pickup in late 2019, contrasting with more sluggish economic performances in some of the world?s other largest economies.

Trump Calls Hong Kong Protests 'Complicating Factor' in Trade Talks
President Trump called antigovernment protests in Hong Kong a ?complicating factor? in his bid for a trade deal with China and didn?t say whether he would sign a bill passed by Congress supporting the protesters.

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