Mark Hoffmeister, the managing director of mid-market mezzanine and structured equity finance specialist manager, Pramerica Capital Group, said his firm pursued ‘non-sponsored’ deals – that is, where Pramerica provided capital directly to a company that did not have a broader relationship with a private equity firm. Not all of the five mezzanine managers presenting at the conference did non-sponsored deals, representing perhaps the biggest differentiator between them. The returns are potentially higher under a non-sponsored scenario, although the risks and effort involved for the mezz debt manager are greater. (These risks are detailed in the case study of Pramerica and Alcentra transactions featured in the breakout box.) The Minnesota-based Northstar Capital, for instance, will not entertain a non-sponsored deal unless the investee company sits within the five-state area surrounding its headquarters.

“We need to be able to get into a car and drive to it,” Northstar partner Charlie Schroeder says. The mezz managers were also unanimous in their desire to see the sellers in their transactions maintain significant skin in the game, for at least a few years. For Christopher Wright, the managing director of Crescent Mezzanine (until recently a part of Trust Company of the West), an important precursor for deal-doing is a decent equity “cushion” sitting below his mezzanine debt in the capital structure. He points out this cushion has become much fluffier of late. In 2007, the average equity segment of a leveraged buyout stood at 34 per cent in Europe and just 31 per cent in the US. By the first half of 2010, those equity contributions had risen to 54 per cent and 42 per cent respectively. Wright also pointed out the good work mezz debt can do in flattening the J-curve, which can blight private equity investment.

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