Where’s the Mezz?

Source: MergersUnleashed

The mezzanine market, armed with billions of dollars, still needs the senior lenders to show signs of life before it can resume its renaissance

By DANIELLE FUGAZY
January 21, 2009

Last year, more than $25 billion was raised by roughly 30 mezzanine providers, according to data from Thomson Reuters. While other lending sources have effectively dried up amid the credit crisis, one would think the mezzanine market would be enjoying a renaissance as one of the few financing options still available. Such a scenario, however, has yet to materialize.

“Very few private equity firms will do a mezz and equity deal; they want senior lending,” says Andy Steuerman, a senior managing director with Golub Capital. “If you can’t get the senior lenders interested, then you have no transaction. That is the situation today.”

Another factor is, quite simply, that the deal market has effectively stalled. Economic uncertainty, on top of the credit woes, has both buyers and sellers retreating to the sidelines until more clarity emerges. For the most part, the only deals being pursued are the transactions that are absolutely necessary for a company’s survival. “We are telling our clients to hang on, now is not the time to sell,” says one banker, speaking anonymously. That in turn keeps the private equity market stagnant, which effectively idles the mezzanine providers, even if they’re armed with billions dollars worth of dry powder.

For the few deals that are out there, another factor is limiting the appeal of mezz financing; namely its price. The mezz market has become costly, almost to the point that it rivals the equity portion of the deal. Read more.