Deal sourcing, do Mezzanine and sub-debt shops originate opportunities direct?
Does anyone know if Mezzanine shops source deals through proprietary channels (calling CEO's etc.)? I know most shops get their dealflow from PE firms etc. but would be interested to know if they also go direct.
I would be shocked if they do it successfully.
Debt is in abundance at low rates.
Would be different if the mezz. shop also takes on majority equity investments.
Maybe they try to source proprietary deals for PE firms that they are close with.
I've had a few interactions with heads of BD mezz shops before but it seemed as if they were a filter for the banker/sponsor channel, and didn't appear to go direct-to-source.
Rarely, but I'm sure it has happened. More often, groups that will underwrite direct investments without a traditional sponsor get referred in by senior lenders (provide additional financing above and beyond what the incumbent can), attorneys, CPAs or are part of a debt refinancing process led by an investment bank.
That makes sense. Little off topic, but do you know if sub-debt shops leverage their own balance sheets to amplify returns at the fund level? I know some BDO's do this, generally speaking.
Not sure other than SBICs, which gain considerable leverage though their fund structures that are supported by the SBA.
It was historically all sponsor driven stuff. With competition and yield compression, some folks are looking for non-sponsored. They may have a few that come directly from management, but I would imagine service providers/commercial bankers are a more efficient source.
Worked at a smaller PE firm that did a lot of mezz and sub debt. Most of our deals came from bankers.
I get calls from lenders once in a while, but we are very niche. Typically they come to us if they're upside down on a deal or it's more of a checking-in/seeing what we are both up to type of thing. My firm is very small though and the debt we need is usually only $2M - $5M.
1st post - happy to join a community of professionals. Little older thread, but seems like I’m in the right spot.
Need some pointers for subdebt, currently have a fund invested in our CA subprime auto loan company at 14% (no PIK). Received a term sheet for a 10% offer (no PIK, we don’t do those) from another fund due to our numbers crushing and us executing well (solid financials and static pool better than ABS issuers), those clowns realized they don’t have a CFL license at the last minute once due diligence was done and everything was clean on our side. Unbelievable to think people entrust their money to 🤡.
Would love to connect to family offices or possibly a mezzanine fund. $4-8M accordion feature preferred.
Does your shop touch specialty finance companies? Would love to hear from the community.
Appreciate everyones time, effort and knowledge.
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