Mezzanine financing can shine when macro clouds loom

Yields have spiked, yet they may soon fall if the economy stalls. Investors extending junior credit, or mezzanine financing, to middle market companies now have an opportunity to lock in fixed-rate contractual coupons while they’re still high and while terms remain favorable for lenders.

Key takeaways

• The speed and magnitude of interest-rate hikes have made this market challenging for businesses seeking to refinance or raise incremental senior debt.
• Junior credit’s flexibility has become more desirable to companies that need fresh capital, and investors supplying mezzanine financing can now benefit from higher contractual yields.
• Junior credit characteristics in this year’s vintage—higher coupons and better terms for lenders—make this moment, in our view, one of the most attractive entry points for mezz investors in years.

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