Mezzanine Financing for Middle Market Deals: Significant Developments

SEGMENT 1: 
Shlomo Troodler, Partner
Blank Rome LLP

• What is “Mezzanine Financing”? When would a deal typically involve “Mezzanine Financing”? Why use Mezzanine Financing? [Idea would be to identify terminology is not always consistent between Mezzanine financing, second lien, tranche B, Junior debt, etc.; focus on private equity platform acquisitions/leveraged buy-outs, add-on acquisitions, dividend recapitalizations, fundless sponsor transactions, growth capital, etc. and ability to get additional capital without high cost of equity capital]
• Documentation and Structure of Mezzanine Financing [Discussion of using the same or different forms as Senior Lenders; matching of covenants, reps, warranties, defaults, etc.; how “Unitranche” facilities relate to Mezzanine; rights as investor if equity piece]
• Relationships of Mezzanine Lender with Other Lenders [High level view of capital structure and intercreditor issues; relates to Unitranche as well]
• Importance of Intercreditor Issues—Typical Provisions and A Few Specific Hot-Button Areas [Blockage (and what should not be blocked), standstill (and when should the standstill not apply), amendment rights, purchase option, rights as an unsecured creditor and cross-default/cross-acceleration] 
• Current Market Trends [decrease in rates and fees, less equity available in form of warrants, untiranche, diligence periods, larger funds investing in middle market opportunities, etc.] 
• Taking of a Security Interest [recent trend to require Mezzanine debt to be unsecured; value of taking security interest] 
• Additional Issues to Watch Out For [AHYDO, covenants on cushions] 
• Issues to Take Into Consideration in Structuring a Mezzanine Transaction [who is your borrower? What is the exit strategy? Projected ROI; capital structure; equity component] 

SEGMENT 2: 
Grant Puleo, Partner
Duane Morris LLP

• Require the Borrower to Opt-In to Article 8
• Obtain UCC Insurance and a Land Title Policy Mezzanine Financing Endorsement
• Negotiate Subordination/Intercreditor Agreement With Senior Lender
• Carefully Review Senior Loan Documents
• Tailor Borrower's Organizational Documents
• Draft Pledge and Security Agreement to Comply With UCC Requirements
• Make Sure All Mezzanine Loan Documents are Consistent
• Require Borrower's Counsel to Provide Opinion Letter
• Establish Comprehensive Checklist for Due Diligence Items
• Follow-up on Items That Need to be Obtained After the Closing