Michael Jacobson, a partner in the firm’s Commercial Finance Practice, was quoted in an article in Financier Worldwide on intercreditor agreements for mezzanine lenders. Although mezzanine lending may have been expected by many to make a quicker recovery after the financial crisis, it has been hampered by its dependence on senior debt markets. “The pricing parameters of mezzanine providers, often organized as partnership funds, are linked directly to their limited partners’ return expectations or, more apropos, requirements,” Mr. Jacobson says. “Given those expectations and requirements, mezzanine funds face inherent difficulties in providing lower-priced senior debt, senior stretch and second lien debt. Therefore, they, alone, cannot fill the senior debt vacancy.”

In the current market, the structures of mezzanine instruments are responding. Mr. Jacobson explains, “Capital structures vary from deal to deal. Some sponsors reluctant to issue ‘in the money’ equity positions at closing try to implement variations of preferred equity structures that diminish the effects of such grants until real growth is realized. So-called ‘no-call’ provisions and higher prepayment premiums also are prevalent—mezzanine providers don’t want to take credit risk today only to be taken out of a transaction upon the loosening of the senior debt markets.” (“Intercreditor agreements for mezzanine lenders,” September 2009)