is Mezzanine Finance?
is corporate debt that, from a
perspective, ranks behind senior debt finance such as traditional bank
loans and overdrafts, but ranks in front of equity investment. This
increased risk and the fact that there is little or no security
available, means that a higher investment return is required. The
return may be in the form of a higher interest rate, equity options or
participation, or some other form of deferred payout.
This two-day interactive
course offers a practical study of the techniques and pricing of
mezzanine, subordinated and equity-linked debt with a special
emphasis on the
private sector in emerging markets.
workshop will include case studies of actual deals done by development
banks and other
emerging market financings, showing how mezzanine debt can serve as a
catalyst to help an enterprise or project get started. We'll use
lecture-discussions, spreadsheet analysis, deal memorandums and
exercises. These will give participants the opportunity to demonstrate
understanding of techniques that can be employed in structuring
transactions in the future .
Features of the Course
What can participants expect to gain from this course?
or update knowledge of required rates of return, cost of capital, and
- Identify the key elements of mezzanine
- Be able to match appropriate
subordinated and mezzanine financing techniques to particular
- Work out appropriate rates of return for
risks taken, and how to structure the payment of these returns
- Perform a cash flow analysis to model the
senior, mezzanine and equity paydown
- Learn post-deal mezzanine loan management,
restructuring and exit decisions.
participants will be provided with a package of
useful for developing mezzanine financing proposals, including
presentation materials, case studies based on
actual deals, and sample
|| Emerging Market Finance: Debt, Equity and Mezzanine
- What is Mezzanine Finance, and where
does it fit into a company's financing structure?
- Why mezzanine for development banks?
participate in more than one level of the capital structure?
study: Vista Tunisia Entry and exit in a mezzanine loan.
- Introduction to The Mezzanine Matrix
- The investor's required return on
debt and on equity
- The corporate cost of funding:
techniques of effective cost analysis
- Cost of capital in emerging markets
(Example: WACC in India)
- Cost of funding with debt, equity and
- Use and pricing of debt-with-warrants
study: Singapore Land warrant-linked loan facilities. Why did
this company use warrants in its debt financing?
- How would we estimate a client's
effective cost of financing? (Example: Dubrovnik Eyewear)
- Putting it together: WACC with
convertibles and hybrids
- Convertible loans and notes
study: Songa Convertible. We consider a convertible bond to
work out its
pricing and the effective cost to the issuer.
- Convertible preferred shares
Air Convertible. We dissect a convertible to work out its
pricing and the effective cost to the issuer.
- Design of convertibles, warrants and
other hybrids for emerging markets (Example: Ban-Pu Coal Convertible Bond)
- Callable debt: pricing the borrower's
call options and prepayment rights
Deep Ocean. How are these options valued?
- Negotiating mezzanine
and hybrids with
clients: what are the key requirements? When should options be included?
study: Logistic Services (Ghana). What options does the
borrower have in this proposed mezzanine financing?
Mezzanine Financing Techniques
- Checklist of senior and subordinated
- Senior secured debt in emerging
markets -- what does it mean?
Example of terms and conditions of a senior secured loan
- Global default and recovery tables
- Second lien versus senior-sub
study: Second Lien Facility. How would you adapt this term sheet
to your client's needs?
- Sale-and-leaseback financing
- Step-up rates, PIKs, participations,
- The structure and pricing of sub debt
Mezzanine. What is the effective cost to the issuer of this
mezzanine debt issue?
- Terms and conditions of a mezzanine
study: The Woodstream Termsheet. Examine this termsheet. Which
features would you, as investor, insist on? Where would you be willing
to give way?
- The warrant financing spreadsheet
- Seller notes:
a useful financing instrument
- An alternative to warrants:
- Issue: how should documents define
exit value? What options to include?
Market Mezzanine and Participation Notes
Funding Financial Institutions: Mezzanine and Hybrid
- Mezzanine in emerging-market
- Performance-linked participation
debt: an alternative form of mezzanine
- The participation financing
Frutas Nicas. What rate of return can you project for DEMF's
investment in Frutas Nicas?
- Setting targets and linking payout to
- The language of the linkage
study: Shanghai Solutions. What are the advantages and
disadvantages of the Contingent Payment Unit in this deal? What are the
- Terms and pricing of the mezzanine in
- Evaluating a funding proposal with
revenue-linked mezzanine debt
study: Suriname Hydropower Services. Can you model the rate of
return on the senior and mezzanine funding for this privatization
- Discussion of appropriate linkage:
turnover, cash flow or profit?
- Post-deal mezzanine management
and ownership transition
- Mezzanine as a catalyst in private
- Review: the cost of equity capital
- Hybrid capital notes and senior
equity finance for banks
- Perpetual notes,
preferred and convertible preferred stock
- Mezzanine for emerging market
financial institutions: comparison of performance-participation notes,
subordinated debt with warrants, convertible notes, and preferred stock
- Case study: Ikhaya
Finance. Is the convertible loan the appropriate form of finance
for Ikhaya, a South African microlender? What options are involved?
What is the performance profile for
- Capital finance: temporary or
- Exit possibilities and drag-along
study: Banco Nuevo. What are the exit possibilities for this
investment in a Central American bank?
of mezzanine in financial institutions:
to price the required rate of return
to design the terms
to plan for exit.
session: Review and analysis
of the mezzanine matrix
to cost of
to Survive an Earnout
bondsonline.com (corporate bond
advfn.com (corporate financial ratios)
optioneducation.net (option valuation)
(convertible bond calculator)
About the Instructor
born in South Africa, has taught finance at NYU, Columbia, Wharton,
in over 45 countries worldwide for the past three decades. He was
Fixed Income Research at Drexel Burnham Lambert from 1986 to 1989. The
author of more than fifty articles on international finance, he has
at the International Monetary Fund and the U.S. Treasury and has been a
consultant with numerous corporations and financial institutions in
North and South America, Europe, Asia, the Middle East and Africa. As a
banker and consultant he has been involved in the
growth of the structured finance market in the USA, Europe and Asia. He
is the author
or co-author of The International Money Market, The Handbook
of International Finance, Cases in International Finance,
Global Financial Markets, Asset Securitization in Asia and The
River Watertrail Guide. He and his wife are
the founders of Cloudbridge, a nature reserve in Costa Rica.
PROPARCO, based in Paris, is the
Investment and Promotions company for Economic Cooperation. Created in
1977, it is a Development Financial Institution partly held by Agence
Française de Développement and private shareholders.
PROPARCO’s mission is to be a catalyst for private investment in
developing countries which targets growth, sustainable development and
reaching the Millennium Development Goals. PROPARCO finances operations
which are economically viable, socially equitable, environmentally
sustainable and financially profitable. See www.proparco.fr