Junior capital investments are structured to balance the transaction’s funding needs, the target company’s capital servicing ability, and the investment’s perceived risk-return profile. Typical junior investment terms and conditions for debt and equity tranches are as follows:
Subordinated Debt
Minimum of $5.0 million, although exceptions for investments promising future lending opportunities are considered.
Maximum of $40 million, however, loans of even larger amounts are available in conjunction with our limited partners.
Current interest rate typically of 10–14%.
5–7 year stated maturity.
Investments generally structured with a single principal payment at maturity, or with amortization in the final 2–3 years of the loan.
Security requirements generally include a second lien on the company’s assets and key-man life insurance on critical management team members.
A deferred return component, usually in the form of an equity participation or deferred interest, to generate an all-in return on capital commensurate with the unique risks of the investment and the expectations for similar investments in the marketplace.
Preferred/Common Equity
Minimum of $2.0 million.
Maximum of $20.0 million, however, larger amounts are available in conjunction with our limited partners.
Current or PIK dividend rate of 6–10% on preferred equity. Common equity generally does not carry a dividend.
Redemption right on preferred stock after 5–8 years via a put option. Common stock investments typically do not have mandatory redemption rights.
Minority equity holder rights such as dilution protection, board observation/voting privileges and limited consultation and consent rights.
Investments structured as non-controlling or controlling, depending on the unique requirements of the transaction.
