Debt structure primer
A practical overview of revolvers, senior secured loans, venture debt and other financing structures.
Overview
Debt options range from facilities supported by liquid assets to financing based on enterprise value, contracted cash flows or future revenue. The appropriate structure depends on the company's assets, cash needs and ability to repay.
The primer describes revolvers, recurring revenue lines, senior secured term debt, asset loans, venture debt, bullet and mezzanine loans, contract financing and revenue based loans, with the security, pricing and underwriting considerations for each.
Three takeaways
- Start with the repayment source: borrowing base assets, recurring revenue, enterprise value, contracted cash flows or a share of future revenue each lead to different structures and lenders.
- Collateral and priority matter. Categories overlap: asset loans and venture debt can be forms of senior secured term debt, and bullet repayment describes a payment profile that does not by itself determine lien priority.
- Compare all-in cost, not only the interest rate. Fees, warrants, deferred principal and revenue-based repayment caps all affect the economics, and some structures should be compared with equity dilution.
Considerations
- Covenants and repayment terms shape flexibility. Review how a facility behaves if performance is slower than expected.
- Existing first lien lenders and intercreditor restrictions may affect whether additional financing is feasible.
- Pricing descriptions in the primer are relative, not current lender quotes, and maturities are illustrative ranges from the source material.
- Availability, collateral, covenants, fees and repayment terms depend on underwriting and negotiated documentation.
Structures overlap and terms vary by lender and borrower. Pricing descriptions are relative and are not current lender quotes.
For information only. This material is not an offer or solicitation, or legal, tax or investment advice. Structures and terms depend on the business, counterparties and definitive documentation.