On the debt side, the manager had: a full share charge over the Hong Kong intermediate holding company and on the majority of shares until an IPO; a prohibition on any further debt until the second quarter of 2010 and subject to performance benchmarks thereafter; financial covenants requiring rapid deleveraging. On the equity side, the manager had: zero-exercise price ‘penny’ warrants which eliminated downside valuation risk; a non-IPO put on warrants to mitigate equity exit risk; absolute anti-dilution protection for any future pre- IPO equity raising to minimize dilution risk. Robinson believes that mezzanine investments can be conservatively selected and effectively structured with lower risk and less volatility than traditional private equity, while capturing a portion of equity returns. Project mezzanine finance most typically involves property or infrastructure deals.

In the Australian property market, there have been several significant changes for mezzanine financiers following the GFC, according to Dominic Lo Surdo, head of funds management for specialist property manager Ashe Morgan Winthrop. He says that vacancies are rising, yields continue to soften, transaction numbers are limited, debt markets are deleveraging and the profile of property buyers is changing. “The current economic climate has created a unique opportunity in the mezzanine debt market,” Lo Surdo says. “There is a massive funding gap … There is an opportunity for mezzanine finance to fill the funding gap with relatively lower risk by replacing senior (secured) debt.”

The investors’ panel at the mezzanine seminar agreed with the presenters that mezzanine funds represented a good opportunity, although they cautioned that opportunities abound in several asset classes post-GFC. Scott Hancock, executive director of specialist asset consultant Quentin Ayers, said that the next 12-18 months looked particularly good for mezzanine funds. Tony Tuohey, trustee of Vision Super, which has invested in mezzanine for several years, said that super funds were likely to ‘club’ together for these sorts of deals in the future. Michael Block, general manager, investments, FuturePlus Financial Services, questioned the after-fee performance of mezzanine funds and similarly structured alternative investments.