Yield Maintenance

Businesses are slowly adjusting to the new post-pandemic normal. While scores of companies have collapsed, some have managed to stay afloat and even scale. For many, access to capital has been the driving factor in their ability to maintain operations.

In this episode of Yield Maintenance, host Brian Coughlan is joined by McGuireWoods private equity partners Dave McLean and Anne Croteau to examine the particulars of mezzanine financing. They provide a general overview of the mezzanine lending marked and break down the details of these financing arrangements and explore the differences between mezzanine and second lien lenders 

They also discuss the current state of the mezzanine financing market and the impact of COVID-19 on the mezzanine market. Although the mezzanine market is typically tied to the M&A industry, which has abated, businesses continue to turn to mezzanine lenders for financing. However, like traditional lenders, mezzanine lenders must ensure deals involve stable and viable companies.

While it remains too early to be certain, Dave and Anne forecast a potential return to the pre-COVID lending environment, although the market may see a more secure mezzanine structure. For mezzanine lenders who want to take advantage of this value opportunity, they advise picking and choosing your investments, with long-term considerations.

Episode Highlights

What is a mezzanine facility? 2:01

Distinction between mezzanine lenders and second lien lenders 8:40

Traditional M&A and debt finance 14:20

Current state of the mezzanine market 25:51

Effects of government stimulus programs on mezzanine lenders 30:48

Pressure for non-bank lenders to move into different product lines 40:01

Outlook for mezzanine lenders post-COVID 42:33

Advice for someone interested in the mezzanine space 46:03

We appreciate you joining us on this episode of Yield Maintenance. If you have a question you would like to ask us or a topic you would like to have covered on a future podcast, please visit our website at mcguirewoods.com. We look forward to hearing from you.

This podcast was recorded and it's being made available by McGuireWoods for informational purposes only. By accessing this podcast, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in the podcast. The views, information, or opinions expressed during this podcast series are solely those of the individuals involved, and do not necessarily reflect those of McGuireWoods. This podcast should not be used as a substitute for competent legal advice from a licensed professional attorney in your state, and should not be construed as an offer to make or consider an investment or course of action.

As businesses begin resuming operations, the debt industry is receiving increased attention, with entities seeking liquidity and financial needs due to COVID-19. Apart from private financing and nontraditional lending, the Federal government is also rolling out programs to stabilize and boost enterprise. If you’re a business looking for additional capital or a lender interested in the trends in the industry, this podcast is for you.

In this inaugural episode of Yield Maintenance, host Brian Coughlan is joined by Clayton Stallbaumer, a McGuireWoods debt finance partner in the Chicago office, to discuss the Main Street Lending Program (MSLP). This new debt-focused stimulus from the Federal Reserve is an emergency credit lending program for businesses that were in sound financial condition before the pandemic struck.

Clayton goes into detail on what the program is, how it operates, the role of the Fed and eligible lenders, and the different facilities that are offered under the program. Clayton and Brian also explore possible issues and risks and the current interest from lenders and borrowers. Because the lenders are expected to do their own underwriting and use their own loan documents (other than certain form documents issued by the Fed), documentation will vary and industry-wide consensus is unlikely. Additionally, the restrictions on the borrower side may make the program less appealing than it initially appeared to be, particularly for private equity-backed businesses.

The MSLP went live on July 6, 2020 (after this episode was recorded), and it is and will continue to be a notable talking point among different stakeholders in the industry. Whether you’re a borrower or lender, now is the perfect time to initiate conversations with your contacts about the MSLP and the types of credit and loans that are available.

Episode highlights

Overview of the MSLP(1:57)

When the MLSP will go live (8:35)

Demand on the lender and borrower side (13:39)

Lender capability to provide desired MSLP loans (19:24)

Types of amendments and documentation (22:38)

Effect of MSLP on direct lenders (26:26)

Risk to direct lenders (31:18)

Possible lender issues (35:08)

Inter lender dynamic (39:19)

Final insight on the MSLP (40:12)

We appreciate you joining us on this episode of Across the Table. To learn more about today’s discussion or to contact us, please visit our website at mcguirewoods.com.

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This podcast was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this podcast, you acknowledge that McGuireWoods makes no warranty, guarantee or representation as to the accuracy or sufficiency of the information featured in the podcast. The views, information or opinions expressed during this podcast series are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This podcast should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.

From McGuireWoods, Yield Maintenance is a debt finance podcast for market participants outside the traditional bank lending space. Whether you’re a direct lender, an alternative lender, in fintech or a borrower, we invite you to come inside the conversation with the specialists and professionals of the debt finance industry.

McGuireWoods is a full-service firm providing legal and public affairs solutions to corporate, individual, and nonprofit clients worldwide for more than 200 years collectively. Our commitment to excellence in everything we do gives our clients a competitive edge in everything they do. Our law firm, over its 186-year history, has earned the loyalty of our many long-standing clients with a deep understanding of their businesses, and broad skills in corporate transactions, high-stakes disputes, and complex regulatory and compliance matters.

To learn more about McGuireWoods or to contact us, please visit our website at mcguirewoods.com.

This podcast was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this podcast, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in the podcast. The views, information, or opinions expressed during this podcast series are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This podcast should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.