Mezzanine Financing: Tools, Applications and Total Performance

11

Outlook

11.1 INTRODUCTION

The outlook for mezzanine reads a bit like the good, the bad and the ugly of the financial markets and everything that has happened since 2008.

It is fair to say that, in general terms, the outlook for mezzanine is pretty good anno 2013 and going forward. A few elements have contributed to that, including the fact that since 2008, and especially now that it is clear how the final format of Basel III will look, financial institutions are repositioning their loan portfolios, thereby often overweighting sovereign bonds over operational loans.¹ For risky loans, a higher level of capital will have to be held at the bank, and therefore cannot be deployed in its effort to maximize its own ROE and shareholder value. Its retraction from the market has left a void which can only be filled with either equity or mezzanine capital, the former of which is often unavailable for (smaller) SMEs. As cash flows have become more volatile given the protracted period of volatility in the market, cash flow visibility has significantly reduced, something credit analysts are still learning to cope with.

Secondly, the financial repression, arranged by central banks in the aftermath of the first part of the financial crisis, which investors have experienced globally not only led to extremely low yield levels on T-bonds and other acclaimed risk-less assets, but also pushed savvy investors in relatively risk-elevated fixed-income products (as well as higher yielding sukuks (i.e., ...