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Mezzanine Financing: Tools, Applications and Total Performance

Book Description

An in-depth explanation of mezzanine finance

Mezzanine finance products, which have grown increasingly popular in recent years, involve a unique and complex form of analysis because of their hybrid nature. Because mezzanine finance involves no collateral, it accentuates legal terms, term sheets, and contracts, in addition to depicting dynamics of both debt and equity. Experienced chairman, lecturer, and professor of investment banking Luc Nijs presents readers with a thorough description of product groups, structuring and pricing, and cultural discrepancies in terms of regulation and application in Mezzanine Financing: Tools, Applications and Total Performance. Nijs analyzes common triumphs and failures encountered in mezzanine financing, and he discusses techniques for risk analysis and risk mitigation. A final study of international capital markets, their products' relevance, attractiveness, and liquidity, and the effects on pure equity/fixed-income risk concludes the book.

  • Conveys a professional's advice through case studies of various regions, industries and contexts

  • Provides the only complete analysis of mezzanine finance as no other books take on the topic as their only subject

  • Details an increasingly popular and globally relevant subject in finance

Those seeking a detailed explanation of the complexities within mezzanine financing will encounter a professional account in Nijs's book.

Table of Contents

  1. Cover Page
  2. Title Page
  3. Copyright
  4. Dedication
  5. Contents
  6. Preface
  7. 1: Introduction
    1. 1.1 THE BI-POLAR WORLD OF FINANCE
    2. 1.2 DEMARCATION OF THE PRODUCT GROUP
    3. 1.3 POSITIONING AND USE OF MEZZANINE FINANCE
    4. 1.4 THE RISK–RETURN CONUNDRUM
    5. 1.5 PROVIDERS OF MEZZANINE FINANCE
    6. 1.6 THE MARKET FOR MEZZANINE PRODUCTS
  8. 2: The Mezzanine Product Group
    1. 2.1 CATEGORIZATION OF THE MEZZANINE PRODUCT GROUP
    2. 2.2 CASE STUDY: THE KRATOS COMPANY – MERGER FINANCE
  9. 3: The Implicit Cost of Mezzanine Products
    1. 3.1 MEASURING RISK
    2. 3.2 TYPES OF RISK
    3. 3.3 EQUITY RISK VERSUS THE RISK OF BORROWING: DEFAULT RISK AND THE COST OF DEBT
    4. 3.4 PUTTING IT ALL TOGETHER
    5. 3.5 HOW MUCH RISK IS THERE IN A MEZZANINE PRODUCT?
    6. 3.6 COST VERSUS RETURN DYNAMICS FOR MEZZANINE PRODUCTS
  10. 4: The ‘Pricing’ Question and Further Financial Dynamics of Convertible Loans and Preferred Convertible Shares
    1. 4.1 PRICING GRID FOR MEZZANINE PRODUCTS
    2. 4.2 FINANCIAL DYNAMICS OF CONVERTIBILITY IN CONVERTIBLE LOANS AND PREFERRED CONVERTIBLE SHARES
    3. 4.3 CASE STUDY: JJ BARS & RESTAURANTS – MEZZANINE FOR EXPANSION
  11. 5: The Mezzanine Product Group and the Financial Industry
    1. 5.1 THE BASEL COMMITTEE AND FRAMEWORK
    2. 5.2 THE EVOLUTION OF THE BASEL RULES (BASEL I AND II)
    3. 5.3 OBJECTIVES OF BASEL III AND THE CENTRAL THEMES
    4. 5.4 IMPACT ON THE USE OF MEZZANINE PRODUCTS IN THE FINANCIAL SECTOR
    5. 5.5 REGULATION IN THE INSURANCE SECTOR IMPACTING THE USE OF MEZZANINE PRODUCTS
    6. 5.6 COCO BONDS – CONTINGENT CONVERTIBLE BONDS
    7. 5.7 ANNEX I – SUMMARY BASEL III
    8. 5.8 ANNEX II – BASEL III – SPECIFIC FEATURES
    9. 5.9 CASE STUDY POSITIONS: MEZZANINE FINANCING FOR FINANCIAL INSTITUTIONS
    10. 5.10 CASE STUDY 1: FINANCING THE FUTURE OF BANK ALHANBRA
    11. 5.11 CASE STUDY 2: GROWING THE BRAZILIAN MARKET
    12. 5.12 CASE STUDY 3: FINANCING A SOUTH AFRICAN FI WHICH IS PART OF A LARGER CONGLOMERATE PRIOR TO AN IPO
  12. 6: Mezzanine and Project Finance
    1. 6.1 TYPES OF PROJECTS
    2. 6.2 FINANCING ASPECTS
    3. 6.3 SECURITIZING PROJECT LOANS
    4. 6.4 CASE STUDY 1: DEVELOPING A TOLL ROAD IN POLAND (A2)
    5. 6.5 CASE STUDY 2: BUILDING AND OPERATING A WIND PARK
  13. 7: Real Estate Projects and Mezzanine Finance
    1. 7.1 WIDER APPLICATION
    2. 7.2 OTHER APPLICATIONS AND RETURN ISSUES
    3. 7.3 CASE STUDY: FINANCING A REAL ESTATE COMPANY IN THE CEE REGION
  14. 8: Mezzanine and the Private Equity Space
    1. 8.1 DRIVERS OF RETURN
    2. 8.2 LBO STRUCTURE
    3. 8.3 TAX IMPLICATIONS
    4. 8.4 ALTERNATIVE TRANSACTIONS USING SIMILAR FINANCING STRUCTURES
    5. 8.5 SUMMARY OF DIFFERENT COMPARTMENTS IN THE LBO STRUCTURE
    6. 8.6 SUMMARY OF TYPES OF SECURITIES IN THE LEVERAGE STRUCTURE OF AN LBO
    7. 8.7 CASE STUDY: BUYING ORANGINA – A TYPICAL LBO WITH SOME INTERESTING QUESTIONS AHEAD!
  15. 9: Mezzanine Products and the World of the Rating Agencies and Accountancy Boards
    1. 9.1 RATING AGENCIES AND THE DEBT-EQUITY CONTINUUM
    2. 9.2 CASE STUDY: FITCH'S APPROACH TO RATING HYBRID FOR CORPORATES
    3. 9.3 MEZZANINE DEBT, RATING AGENCIES, THE REGULATOR AND FINANCIAL INSTITUTIONS AFTER 2008
    4. 9.4 APPENDIX 1: EQUITY–CONTENT MAXIMIZATION AND STRUCTURING CRITERIA AT MOODY'S
    5. 9.5 APPENDIX 2: S&P'S AND MOODY'S KEY STRUCTURING CONSIDERATIONS
    6. 9.6 THE INTRICACIES OF THE ACCOUNTING WORLD
    7. 9.7 DEMARCATION LINES AND PRODUCT MODELING
  16. 10: Term Sheets, Inter-creditor Agreements and Debt Restructuring
    1. 10.1 GROUPS OF COVENANTS
    2. 10.2 REVIEW OF KEY COVENANTS FOR MEZZANINE PRODUCTS
    3. 10.3 OTHER COVENANTS
    4. 10.4 CASE STUDIES: THE GOOD, THE BAD AND THE UGLY
    5. 10.5 A COMPARISON OF DEBT ASSET CLASSES
    6. 10.6 CASE STUDY: LYONDELLBASELL AND LYONDELL CHEMICAL COMPANY
  17. 11: Outlook
    1. 11.1 INTRODUCTION
    2. 11.2 THE NOT-TOO-DISTANT PAST
    3. 11.3 NEW KIDS ON THE BLOCK
    4. 11.4 THE UNITRANCHE PRODUCT
    5. 11.5 REORGANIZATION OF INSOLVENCY LAWS IN EUROPE
    6. 11.6 ISLAMIC FINANCE: SUKUKS AND NON-RISK-FREE BOND LOOK-ALIKES
    7. 11.7 ORIGINATION SOURCES FOR MEZZANINE
    8. 11.8 THE ROLE OF GOVERNMENTAL ORGANIZATIONS
    9. 11.9 THE REFINANCING WALL: OPPORTUNITIES AND CHALLENGES
    10. 11.10 PERFORMANCE OF MEZZANINE PRODUCTS
  18. Appendix 1: Overview of Term Sheets and/or Model Contracts for the Mezzanine Product Group
    1. APPENDIX 1.A TERM SHEET FOR A SENIOR SECURED LOAN
    2. APPENDIX 1.B TERM SHEET FOR A SUBORDINATED LOAN/BOND
    3. APPENDIX 1.C TERM SHEET FOR MEZZANINE DEBT
    4. APPENDIX 1.D WARRANT PURCHASE AGREEMENT
    5. APPENDIX 1.E CONVERTIBLE BOND TERM SHEET
    6. APPENDIX 1.F CONVERTIBLE PREFERRED SHARES
    7. APPENDIX 1.G TERM SHEET FOR SENIOR SECURED FINANCING
  19. Appendix 2: First Lien/Second Lien Inter-creditor Agreement
    1. PREAMBLE
    2. AGREEMENT
    3. 1 LIEN PRIORITIES
    4. 2 MODIFICATION OF OBLIGATIONS
    5. 3 ENFORCEMENT
    6. 4 PAYMENTS
    7. 5 PURCHASE OF FIRST LIEN OBLIGATIONS BY SECOND LIEN CLAIMHOLDERS
    8. 6 INSOLVENCY PROCEEDINGS
    9. 7 MISCELLANEOUS
    10. 8 DEFINITIONS
  20. Glossary
  21. Case Guidance/Solutions
    1. KRATOS ACQUISITION FINANCE
    2. JJ BARS & RESTAURANTS
    3. POLAND A2
    4. BUILDING AND OPERATING A WIND PARK
    5. FINANCING A REAL ESTATE COMPANY IN THE CEE REGION
    6. BUYING ORANGINA – A TYPICAL LBO WITH SOME INTERESTING QUESTIONS AHEAD!
    7. LYONDELL CHEMICAL COMPANY
  22. Index