Rating.gencies, such as Standard & Coors and Moody’s, dictate a good deal of underwriting parameters that are then applied by conduit lenders. SITUATIONS FOR USE OF MEZZANINE FINANCE users and their motivations differ, and these differences merit discussion. Mezzanine loans are similar to second mortgages, except that mezzanine loans are secured by a percentage of ownership of the project, a 2nd T.D. that owns the property, as opposed to the real estate. Property values, as a function of operating cash flow, have declined somewhat proportionately to the decline in tow-line revenues. To join our mailing list to receive regular updates, click here . Some non-conduit lenders take the attitude that their interests are already covered in the agreement with the borrower and there is no need to complicate matters by bringing in an additional financial partner with objectives that might not align with those of the lender. Mezzanine finance has become an important source of capital for commercial real estate acquisitions, development, and refinancing, as traditional first mortgage providers have become more reluctant to finance projects at loan-to-value ITV ratios in excess of 65%. Specifically, I would like to talk about how mezzanine debt is structured and what the implications are for small businesses that use it. The owner can secure new first mortgage debt and mezzanine financing that will bring the overall ITV to 80%, allowing him/her to effectively capture the difference between the value of the property and the balance of the loan. This pool of real estate, however, includes properties that are unlikely to be candidates for mezzanine finance, and we therefore exclude them.
A Few Guidelines On Identifying Significant Elements For Mezzanine Finance
On July 3, 2014, certain mezzanine lenders who had purchased their positions filed a complaint alleging that the deed-in-lieu breached the terms of the intercreditor agreement, among other claims. These mezzanine lenders are pursuing damages from the special servicer as Senior Lender. The special servicer filed an initial motion to dismiss on Aug. 18, 2014 and a motion to dismiss a second amended complaint on March 9, 2015. Status is pending regarding the motion to dismiss, but a final ruling is expected in the near term. Any potential sale of the property cannot occur until this litigation is resolved; therefore, timing of a sale remains uncertain. In November 2012, the special servicer (CWCapital) announced a settlement to The Roberts Litigation to address historical overcharges and future rents for over 4,300 units. Final approval for the settlement was reached and implementation is now complete.
Mezzanine is decidedly not a source of start-up funding. For example a $3 million 15% current pay interest mezzanine loan with a 5 year term would look something like this: Mezzanine debt can also frequently include warrants, which are very similar to equity options. In addition there may also be a warrant for the lender and restrictive covenants under which the lender is further protected. FIRST MORTGAGE MARKET DEVELOPMENTS In order to understand the mezzanine market, a brief review of changes in the first mortgage market will be helpful. Major provisions in the partnership agreements cover decision-making authority and specify decisions that require approval from the mezzanine partner. Another possible exit is for the property cash flows to cover all the debt service on the first mortgage but not all the current pay portion of the mezzanine. At an ITV of 85%, which is a standard mezzanine finance and first mortgage capital structure, mezzanine lenders could potentially provide 17% of the total real estate value. Often, when a borrower obtains a mezzanine loan, cash flows from the property are insufficient to service both loans, especially when the mezzanine loan is at its “full note rate” i.e. the interest rate quoted in the promissory note. errs in this latter type of deal can exceed 20%. Centerfield is a leading provider of subordinated debt and equity capital to lower middle market companies.
Leading Proxy Advisory Firms ISS and Glass Lewis Recommend that Saratoga Investment... -- NEW YORK, Sept. 22, 2015 /PRNewswire/ --
The proxy statement and other information relating to the 2015 Annual Meeting of Stockholders are available on the SEC's website ( www.sec.gov ) or under the Investor Relations section of the Company's website ( www.saratogainvestmentcorp.com ). About Saratoga Investment Corp. Saratoga Investment Corp. is a specialty finance company that provides customized financing solutions to U.S. middle-market businesses. The Company invests primarily in mezzanine debt, senior and unitranche leveraged loans and, to a lesser extent, equity to provide financing for change of ownership transactions, strategic acquisitions, recapitalizations and growth initiatives in partnership with business owners, management teams and financial sponsors. Saratoga Investment Corp.'s objective is to create attractive risk-adjusted returns by generating current income and long-term capital appreciation from its debt and equity investments. Saratoga Investment Corp. has elected to be regulated as a business development company ("BDC") under the Investment Company Act of 1940 and is externally-managed by Saratoga Investment Advisors, LLC, an SEC-registered investment advisor focusing on credit-driven strategies. Saratoga Investment Corp. owns an SBIC-licensed subsidiary and manages a $300 million Collateralized Loan Obligation (CLO) fund. It also owns 100% of the subordinated notes of the CLO. These diverse funding sources, combined with a permanent capital base, enable Saratoga Investment Corp.
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