Mezzanine Debt Repayment Strategies

Mezzanine debt repayment occurs in several ways and relies on the growth in EBITDA that companies experience after a mezzanine debt infusion. When mezzanine debt is used to fund an acquisition or faster organic growth, EBITDA increases as does the size of the borrower’s balance sheet. As EBITDA increases, the Company can make large principal payments out of cash flow. In addition, balance sheet growth allows the company to attract loan refinancing interest from a bank. Most mezzanine debt deals are successfully refinanced within 2 to 3 years post the initial closing. The growth in cash flow allows for principal repayment generally starting in year 3. If the Company is not able to repay the entire amount of the mezzanine debt loan out of cash flow, it can make meaningful progress and then refinance the remaining amount due at maturity with a bank. Finally, mezzanine debt loans can be paid off when the Company is sold at the time of exit.
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