What is credit?
There are three forms of credit: bank debt, subordinated or mezzanine debt, and unitranche debt:
—either term or revolving—is typically senior in right of payment, and is secured by company assets. While this is generally the least expensive form of credit, it typically requires hard asset collateral and principal amortization during the term of the loan, with a final maturity within five years.
Subordinated or mezzanine debt
is usually more costly, but is structured so that borrowers pay only interest for the first few years and then repay all of the principal at maturity—five to seven years or longer from the original loan date.
is a hybrid, which can replace both bank and mezzanine debt with one tranche of debt at a blended price. Unitranche debt can be particularly useful in providing a tailored financing solution while maintaining the flexibility needed to complete an acquisition or a recapitalization, or to provide liquidity.Back to top