Mezzanine’s role in Australia’s financing sector has grown in light of the economic crisis because, not only has it acted as an alternative to taking on senior debt – as banks became more stringent in their lending – but also to equity itself, says Gary Stead, Co-Founder and Managing Director of Shearwater Capital.
Stead tells AVCJ that Australia's shifting financing landscape has landed mezzanine with new bedfellows that it wouldn't have had to compete with in times past. "The alternative used to be senior debt. So the private equity funds would say, ‘do we really need to do mezzanine? Not really, because the banks will go an extra turn. They'll go to 6x; we'll push them to 6 1/2x. We don't really need this expensive mezzanine,'" Stead says. "The banks of today say, ‘we're at 3x; we're at 3 1/2x, take it or leave it,' and the private equity fund is then talking about writing an equity check for 40-45%. Then our capital becomes an alternative to equity, not to senior debt, and as an alternative to equity, I think we're good. We're cheaper."
Stead additionally looks at the challenges private equity players face in Australia, and the avenues they still have available to them in terms of borrowing capital.
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