Mezzanine debt finance is on the rise and is more lucrative than ever, according to a study by CEPRES.
Senior debt has plummeted by almost half (45 per cent) since its peak in 2007, but mezz and equity financing are up by 25 per cent. Moreover mezzanine pricing (current interest and PIK) is at a 15-year high despite the current low interest rate environment.
The study found that more expensive private debt outperforms in times of banking turmoil and volatility such as now, and underperforms in more buoyant markets.
“As banks entered and exited the lending markets sporadically last year in response to variable political and regulatory pressure, we saw how the private debt providers were able to step in and fill the void on a timely basis. Growing businesses need access to flexible finance and are not able to wait for the banks when they have a clear need for capital; this is where strategies such as mezzanine can prove their value,” said Daniel Schmidt, managing partner of CEPRES.