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Subordinate Debt
Subordinated or Mezzanine debt entails a separate debt facility that ranks behind in priority to a Senior Debt facility. It is meant to address the gap between Senior Debt and traditional Equity contribution from the Borrower.
A Subordinated debt facility will typically take a Registered 2d mortgage on the security property/ies involved in the transaction.
By delivering borrowing capacity as high as 80% LVR, a Subordinated debt arrangement can delivery significant strategic and financial value to a property developer / investor:
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Greater Return on Equity / Return on investment, by substituting equity capital with relatively cheaper debt
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More efficient usage of Sponsor’s equity capital, with the Borrower needing to deploy less equity than would be the case without the Mezzanine debt arrangement
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Improved diversification by being able to spread cash reserves across a wider range of projects
We are able to structure Subordinated debt arrangements to suite a wide range of project needs. Contrary to popular opinion, Subordinated debt doesn’t have to be prohibitively expensive. For the right ventures and Sponsors, we can achieve pricing as low as 13.00% p.a.
Used effectively, Subordinated debt can be a real strategic enabler for the venture.