Larkspur has experience in placing senior debt for its clients including senior secured credit facilities; senior secured and unsecured term loans. We work with both cash flow and asset based lenders and help companies to identify the best obtainable rates, terms and covenants. Senior debt can be used to finance growth, acquisitions, leveraged buyouts, recapitalizations or working capital needs. Senior debt can be placed separately, or as part of an overall financing including other layers in the capital structure.
Subordinated debt, or mezzanine debt, is subordinate to senior debt, but ranks ahead of the various classes of equity. It can represent an attractive alternative for companies in an expansion stage, where it can be structured as a stand-alone security or utilized in conjunction with equity. Mezzanine capital is also typically utilized as a component of the capital structure in a leveraged acquisition financing or buyout (which can include both senior debt and private equity securities).
Mezzanine debt has features of both debt and equity and generally requires an internal rate of return of 16% to 25%. The total return is achieved by structuring the security to contain an interest rate component and an equity component. The interest rate coupon is typically 10-13% and is structured as either cash pay or cash pay with some portion of the interest accrued (“Payment in kind” or “PIK”). The equity component is typically provided for in the form of warrants in an amount such that investors achieve their targeted rates of return. The term of the subordinated debt is typically 5-10 years and can be structured as bullet maturity or an amortizing structure. (In either case, no principal matures until senior term debt is retired). Furthermore, when senior and subordinated debt financing is involved in a transaction, the negotiation of agreements between the lenders (“inter-creditor agreements”) can be complicated.