Mezzanine

Finance

WHAT IS MEZZANINE FINANCE

Mezzanine finance provides an additional layer of debt to the typical structure by sitting behind senior debt and thereby reducing the level of equity that a developer needs to input in to a given project.

Mezzanine finance is secured on a 2nd charge basis with the senior debt lender holding a 1st charge position. The senior debt lender has a priority charge over the development asset and the relationship between the two lenders is governed by a Deed of Priority (DoP) or Intercreditor Deed (ICD).

WITHOUT

Equity

Senior Debt

WITH

Equity

Mezzanine

Senior Debt

HOW MUCH CAN I BORROW?

On a typical scheme with a 20% return on cost the combined lending of a senior debt facility and a mezzanine facility can provide up to 90% of total costs. With this structure the developer can significantly reduce his equity contribution compared to a structure where only senior debt is being provided.

A KEY BENEFIT

One of the key benefits of mezzanine finance is that it allows an opportunity rich developer with limited equity to spread that limited equity across a number of schemes. Not only can he do more but he can also diversify his exposure across a number of different schemes.

 

In addition, mezzanine compares favourably against an alternative joint venture arrangement as the developer is able to keep 100% of the upside on any improvement in sales value and can maintain full control over the scheme.

Equity

Equity

Equity

Equity

ANOTHER BENEFIT

Finally a mezzanine structure can also be used to release some of the developer’s equity part way through the schemes so that funds can be used to acquire options on land, cover the ever increasing cost of planning applications and fund the associated professional fees, items which are notoriously difficult to fund.

 

OUR LENDING CRITERIA

  • Consented residential development schemes in England and Wales

  • Experienced developers with a demonstrable track record

  • Funding requirements of between £100,000 and £3,000,000

  • Borrowers to have a minimum of 10% of development costs

OUR STRUCTURE

  • 2nd charge security against the asset

  • Formal DoP/ICD with the senior debt lender

  • Loan terms of up to 24 months

  • Flexible interest rates on a non-compounded basis

  • Interest rolled up and added to the facility

  • No exit fees

GET IN TOUCH

To discuss your funding requirements, get in touch using the contact details below.

Tel: 0118 9783 955

Email: mail@davonltd.com

© 2020 Davon Ltd