In preparation for a case study interview I came across the following question:
Given is a company ABC, business plan assumptions for the next 5-7 years and a financing package.
Question: Shall we Invest in the Senior Debt, Mezzanine or Equity of Company ABC?
How do you approach this? Do you recommend mezzanine, debt tranches if the equity returns are to low, you see big downside risks, or how do you arrive at a recommendation? Can you recommend any readings on this topic?
Hi Aschrack, check out these resources:
Fingers crossed that one of those helps you.
Bump
I got this question like at like 4 different interviews and each time the answer was mezzanine.
More broadly, yes they basically want to make sure you understand the risk/reward structure of different instruments across the cap structure. Throw out the phrase "risk-adjusted returns" if you want to sound smart. Mezz would likely have the best risk adjusted return if you can be high in the capital structure but get penny warrants or liq preference to get equity like returns
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