Understanding Subordinated Debt

Subordinated debt, sometimes referred to as junior or mezzanine financing, can provide additional capital when a business’s funding requirements exceed the level supported by its senior debt facilities.

It may offer an alternative to raising additional equity and, depending on the structure, can help owners avoid diluting their existing ownership interests.

How Subordinated Debt Works

Subordinated debt ranks behind senior credit facilities in repayment priority.

It may be structured as:

• Unsecured Subordinated Debt: Financing without a specific security interest in the borrower’s assets.

• Second-Lien Debt: Financing secured by a junior interest behind the senior lender.

Because subordinated lenders accept greater risk than senior lenders, this financing generally carries a higher cost of capital.

As described in Glengarry’s existing financing materials, indicative yields may fall in the mid-to-upper teens and, in certain circumstances, into the 20% range. Actual pricing depends on the transaction, market conditions and lender requirements.

Typical Uses of Subordinated Debt

Subordinated financing may help provide incremental capital for:

• Strategic business acquisitions.

• Management or ownership buyouts.

• Recapitalisations.

• Business expansion projects.

• Other growth initiatives requiring capital beyond available senior debt capacity.

Evaluating the Capital Structure

The suitability of subordinated financing depends on the company’s cash flow, existing senior debt arrangements, financing objectives and ability to support the additional obligations.

Glengarry helps businesses assess these requirements and explore potential subordinated financing solutions through appropriate capital providers.

Discuss Your Subordinated Financing Requirements

Contact Glengarry Capital Group to review your capital structure and explore available financing options.