Senior debt is provided by banks usually on an asset basis. It is the most senior layer of capital and is secured by the assets and a personal guarantee. Due to its low risk, it is the lowest priced layer in the 3-layer cake and is generally at prime plus or minus a small spread. It is short-term money and generally is due in less than 3 years. Banks are generally risk averse and do not have the same risk/reward profile as a business owner. As a result, it is best used for short-term needs where the risk of non-repayment is quite low.

In the acquisition financing arena, capital availability is destiny as companies require reliable access to capital to grow over the long term. Unforeseen capital needs usually arise when acquirers least expect it. This can cause some concern for the acquisition financing provider, especially when covenants tighten up and that working capital availability is utilized faster than expected.

Mezzanine debt borrowing is usually a straightforward activity that many companies use for funding of transitional growth. Mezzanine debt lenders are highly transparent about their due diligence approach and their post-closing loan management making it easy for companies to engage with.

Elections have consequences and positive ones at that for the acquisition financing middle market. While much media attention is paid to the direction of the yield curve and the Fed’s likely rate cuts, scant attention is paid to the more important drivers of the acquisition financing market – business psychology and regulatory climate.

Senior Debt

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