Subordinated debt, also known as mezzanine or junior debt, is a second-level of debt. Such debt is referred to as subordinate, because the debt providers (lenders) have subordinate status in relationship to the senior debt.
Senior debt refers to debt that is in first-lien position. In the event of a default and subsequent liquidation, the senior lender (often a commercial bank), has first priority in recouping its investment. When a company goes bankrupt, stake holders divide the proceeds from selling the company's assets. The senior lender is first to be re-paid, followed by the subordinated debt holders, followed by equity holders. Because senior debt's first priority repayment presents a lower-risk position compared to subordinated debt or equity investors, this debt is expected to have more favorable interest rates associated with it, commensurate with the lower risk assumed.
PURPOSE OF MEZZANINE FINANCING
Mezzanine loans fill the gap between equity and senior debt and are often used to finance leveraged buyouts, to recapitalize a company's balance sheet or to fund internal growth strategies. Mezzanine loans have thus become a common alternative to conventional subordinate financing where the terms of a first position loan prohibit junior liens.
MEZZANINE FINANCING STRUCTURE AND TERMS
Mezzanine loans are typically utilized in conjunction with equity capital and senior debt and would rank second below first-lien debt, but above equity in the event of bankruptcy. Mezzanine loans are therefore a more expensive source of financing than senior debt because of the increased credit risk. Consequently, a mezzanine financier is generally looking for a 16 to 30 percent return on investment.
Most mezzanine deals have a life of about three to seven years with the bulk of the principal often paid toward the back-end of the loan. In addition to an interest payment normally associated with debt, mezzanine loans will often include an option for an equity stake in the company in the form of warrants to convert the debt to equity much like that of a convertible bond.
Wednesday, June 10, 2009
5 Must Know Gems to Negotiate Credit Card Debt Yourself
When one has to deal with an elevated amount of debt, many times the ability to make payments and continue to make on-time payments can seem like the hardest thing in the world to do. While there are many viable ways of dealing with this debt fairly quickly such as debt settlement companies and transferring balances from one card to another, one of the quickest solutions is the ability to negotiate credit card debt yourself. If done successfully, significant results can be achieved in a relatively short period of time. Here are 5 must know gems that everyone should know to effectively negotiate credit card debt on your own behalf.
What To Negotiate?
Gem #1 Start of with interest rate negotiations. This, by far, is one of the easiest ways to negotiate credit card debt yourself. You will want to employ this tactic if your interest rates on your existing credit cards are high. Due to the highly competitiveness in the credit card industry, many of the cards available will have considerably low interest rates.
Gem #2 Try to negotiate your monthly payment. Quite often this can be a good negotiating tactic for you as well. Keep in mind that credit card companies will be less willing to engage in negotiations if you are current and have no problem making your payments. This is why it is important that you vocalize to the credit card service company the situation you are in. If it's bad, tell them so. If it's going to get bad, tell them that also.
How To Negotiate?
Here are three quick and effective techniques that you can use right now to implement these tactics to effectively negotiate credit card debt yourself.
Gem #3
Be prepared. A pro football team wouldn't go into a superbowl championship without know the plays, right. The same goes for you and your credit card negotiations. Sit down and plan out exactly what you want to get out of the negotiation with your servicer. Try to view the situation from the credit card companies perspective. Think of what major concerns they will have. Come up with potential comebacks and questions they will have so that you are better equipped and ready to have an exact answer.
Gem #4
Reach for the stars. If your going to do this, than you'd better do it big or just don't do it at all. What I'm trying to say by this is, you need to ask for exactly what you want. Don't anticipate or assume anything. We've all heard the expression "closed mouths don't get fed". This remains true in this particular situation as well. Know that you may not get what you ask for but the main thing to note here is that the only way people can give you what you want is by informing them of what you want.
Gem #5
Know that in the end a compromise will need to be made. Knowing this beforehand will help you to remain courteous and professional in your negotiation style. Remember that people want to help others that they like. If you come across as the big bad or irate customer, your shooting down your chances from the start. Get on their good side if you can from the beginning and this may work out for you in the end.
What To Negotiate?
Gem #1 Start of with interest rate negotiations. This, by far, is one of the easiest ways to negotiate credit card debt yourself. You will want to employ this tactic if your interest rates on your existing credit cards are high. Due to the highly competitiveness in the credit card industry, many of the cards available will have considerably low interest rates.
Gem #2 Try to negotiate your monthly payment. Quite often this can be a good negotiating tactic for you as well. Keep in mind that credit card companies will be less willing to engage in negotiations if you are current and have no problem making your payments. This is why it is important that you vocalize to the credit card service company the situation you are in. If it's bad, tell them so. If it's going to get bad, tell them that also.
How To Negotiate?
Here are three quick and effective techniques that you can use right now to implement these tactics to effectively negotiate credit card debt yourself.
Gem #3
Be prepared. A pro football team wouldn't go into a superbowl championship without know the plays, right. The same goes for you and your credit card negotiations. Sit down and plan out exactly what you want to get out of the negotiation with your servicer. Try to view the situation from the credit card companies perspective. Think of what major concerns they will have. Come up with potential comebacks and questions they will have so that you are better equipped and ready to have an exact answer.
Gem #4
Reach for the stars. If your going to do this, than you'd better do it big or just don't do it at all. What I'm trying to say by this is, you need to ask for exactly what you want. Don't anticipate or assume anything. We've all heard the expression "closed mouths don't get fed". This remains true in this particular situation as well. Know that you may not get what you ask for but the main thing to note here is that the only way people can give you what you want is by informing them of what you want.
Gem #5
Know that in the end a compromise will need to be made. Knowing this beforehand will help you to remain courteous and professional in your negotiation style. Remember that people want to help others that they like. If you come across as the big bad or irate customer, your shooting down your chances from the start. Get on their good side if you can from the beginning and this may work out for you in the end.
How Do I Get Out of Debt?
This is a question that is on the mind of so many people who are hurting financially during these tough economic times. There are several marketing schemes for getting out of debt available today.
Let me share five of these schemes with you.
The first scheme that seeks to address the question, "how do I get out of debt?" Consists of finding loopholes or ways to avoid paying your bills altogether. This can damage your reputation, ruin your credit, and bring lawsuits against you...Or worse ruin your life.
The second scheme that seeks to address the question, "how do I get out of debt?" Consists of filing for bankruptcy. This is an available option, provided you want to risk treading the economic waters for the next 7 to 10 years. Your credit and your ability to finance a home and car will be gone for 7-10 years; maybe much longer.
The third scheme that seeks to address the question, "how do I get out of debt?" Consists of consolidating all of your debts. While this is a little better than many of the so-called debt reduction methods, this one will only have you paying your bills to a different creditor. And sure, you may lighten the load a little bit, but not by much. Instead of taking 35 years to pay off your mortgage and other debts like it takes for the average family, you might only shave off a few years.
The fourth scheme that seeks to address the question, "how do I get out of debt?" Consists of turning your financial affairs over to nonprofit-organizations. You may have seen their ads claiming they'll help you become debt free. Let me ask you a question. If they are really going to pay all of your debt off, how do you think they could remain in business? How could they afford to continue to advertise their services? It is just another cleverly disguised pitch to consolidate your debt so you pay them the accruing interest owed.
All of these schemes involve letting someone else take control of your finances to help you get out of debt. There is another way, however, to address the question, "how do I get out of debt?" And that is to take control of your own financial destiny and to educate yourself on how to get out of debt. Educating yourself on getting out of debt involves learning how to list your income and expenses, eliminate unnecessary spending, prioritize your debts, and implement a repayment plan.
Let me share five of these schemes with you.
The first scheme that seeks to address the question, "how do I get out of debt?" Consists of finding loopholes or ways to avoid paying your bills altogether. This can damage your reputation, ruin your credit, and bring lawsuits against you...Or worse ruin your life.
The second scheme that seeks to address the question, "how do I get out of debt?" Consists of filing for bankruptcy. This is an available option, provided you want to risk treading the economic waters for the next 7 to 10 years. Your credit and your ability to finance a home and car will be gone for 7-10 years; maybe much longer.
The third scheme that seeks to address the question, "how do I get out of debt?" Consists of consolidating all of your debts. While this is a little better than many of the so-called debt reduction methods, this one will only have you paying your bills to a different creditor. And sure, you may lighten the load a little bit, but not by much. Instead of taking 35 years to pay off your mortgage and other debts like it takes for the average family, you might only shave off a few years.
The fourth scheme that seeks to address the question, "how do I get out of debt?" Consists of turning your financial affairs over to nonprofit-organizations. You may have seen their ads claiming they'll help you become debt free. Let me ask you a question. If they are really going to pay all of your debt off, how do you think they could remain in business? How could they afford to continue to advertise their services? It is just another cleverly disguised pitch to consolidate your debt so you pay them the accruing interest owed.
All of these schemes involve letting someone else take control of your finances to help you get out of debt. There is another way, however, to address the question, "how do I get out of debt?" And that is to take control of your own financial destiny and to educate yourself on how to get out of debt. Educating yourself on getting out of debt involves learning how to list your income and expenses, eliminate unnecessary spending, prioritize your debts, and implement a repayment plan.
Pay Your Debt on Time
Debt can be expensive. There is interest to pay and fees for maintaining and obtain your credit. This is if you obey the loan terms that you agreed to - but if you don't pay your debt payments on time, it can get even more expensive for you.
There are several expenses in not paying on time you should deal with if you are in a situation where you can't pay your loans on time. Some are obvious, while others are more indirect.
The late fees
If you miss a payment, the people you owe money are not going to be happy. They will most likely charge you a fee for paying late and they are right in doing so, even though it might seem unfair that you have to pay more now, when you don't have the money to pay the bill in the first place! But your not paying is a breach of your agreement and they have extra expenses dealing with your late repayment. They would also like to discourage you and other people from paying late again.
Registration as a bad debtor
By paying late you risk getting registered as a bad debtor. Obviously, this will not happen if you are just a few days late and it is the first time you are paying late. However, it might happen if you continue to make your payments late. It will very likely also hurt your credit score if you don't pay on time. This is again the lenders' way to protect their business.
No future loans
If you get to the point where you have been registered as a bad debtor or your credit score gets affected, you will find it difficult to obtain new loans. If you can find new loans you will probably have to pay a huge interest rate. Not getting new loans could be a good thing, as you should not get into more debt if you already have problems paying the debt you have. However it might result in you not being able to buy a house with a mortgage several years into the future.
Loss of self worth
This might be the biggest loss of them all. If you start feeling bad about yourself, because of money issues, this is not good. You have gone too far and it is time to do something serious about it, as it can affect the rest of your life. Try to keep things in perspective, though. There are a difference between not paying off your debt due to unfortunate events and not paying because you acted recklessly when you got into debt.
Of course, you don't always have a choice. Sometimes you are just struck by unfortunate events that knock your finances off balance. The best thing to do in that case is to realize it has some cost for you and then deal with the problems head-on.
There are several expenses in not paying on time you should deal with if you are in a situation where you can't pay your loans on time. Some are obvious, while others are more indirect.
The late fees
If you miss a payment, the people you owe money are not going to be happy. They will most likely charge you a fee for paying late and they are right in doing so, even though it might seem unfair that you have to pay more now, when you don't have the money to pay the bill in the first place! But your not paying is a breach of your agreement and they have extra expenses dealing with your late repayment. They would also like to discourage you and other people from paying late again.
Registration as a bad debtor
By paying late you risk getting registered as a bad debtor. Obviously, this will not happen if you are just a few days late and it is the first time you are paying late. However, it might happen if you continue to make your payments late. It will very likely also hurt your credit score if you don't pay on time. This is again the lenders' way to protect their business.
No future loans
If you get to the point where you have been registered as a bad debtor or your credit score gets affected, you will find it difficult to obtain new loans. If you can find new loans you will probably have to pay a huge interest rate. Not getting new loans could be a good thing, as you should not get into more debt if you already have problems paying the debt you have. However it might result in you not being able to buy a house with a mortgage several years into the future.
Loss of self worth
This might be the biggest loss of them all. If you start feeling bad about yourself, because of money issues, this is not good. You have gone too far and it is time to do something serious about it, as it can affect the rest of your life. Try to keep things in perspective, though. There are a difference between not paying off your debt due to unfortunate events and not paying because you acted recklessly when you got into debt.
Of course, you don't always have a choice. Sometimes you are just struck by unfortunate events that knock your finances off balance. The best thing to do in that case is to realize it has some cost for you and then deal with the problems head-on.
Three Proven Steps to Become Debt Free and Stay in Control
With the whirlwind of economic woes affecting many people these days, becoming debt free is now the main focus on many people's mind. People are starting to understand if they want live debt free they must prepare, plan, and take action to get there.
Below I have provided three proven steps to become debt free and stay in control of your finances.
Step 1: Keep An Emergency Fund
We are living in volatile times, so keeping an emergency fund is a must. Don't even think about creating a debt free lifestyle without including an emergency fund in your financial portfolio. You should strive for at least 4-6 months worth of expenses in an emergency fund. A few years ago, many people didn't thing twice about establishing an emergency fund. The reason for that was home owners were able to tap into their home equity if an emergency arises. But now mortgage lenders are more hesitant to give home owners lines of credit due to the current state of housing prices.
So you must start now in building your emergency fund, even if it means sacrificing your retirement fund contributions for a short period of time.
Step 2: Lower Credit Card Rates Now
If your have a high credit score, stop hesitating and call the credit card companies and ask for a better deal. You maybe able to take advantage of a 0% balance transfer offer to pull your current debt to another credit card company. However, if you go this route, make sure you pay off the balance in full before the promotional rate expires. In past offers, teaser and promotional rates are usually for six to twelve months.
Step 3: Prepare For A Worst Case Scenario
When your coming up with a plan to become debt free, you have to realize that you have to live with less than you currently make. The reason for this is because you never know when you might be laid off from you job, or end with an unexpected expense. However, when you prepare for that rainy day when those unforeseen circumstance occur, you will be ready!
Below I have provided three proven steps to become debt free and stay in control of your finances.
Step 1: Keep An Emergency Fund
We are living in volatile times, so keeping an emergency fund is a must. Don't even think about creating a debt free lifestyle without including an emergency fund in your financial portfolio. You should strive for at least 4-6 months worth of expenses in an emergency fund. A few years ago, many people didn't thing twice about establishing an emergency fund. The reason for that was home owners were able to tap into their home equity if an emergency arises. But now mortgage lenders are more hesitant to give home owners lines of credit due to the current state of housing prices.
So you must start now in building your emergency fund, even if it means sacrificing your retirement fund contributions for a short period of time.
Step 2: Lower Credit Card Rates Now
If your have a high credit score, stop hesitating and call the credit card companies and ask for a better deal. You maybe able to take advantage of a 0% balance transfer offer to pull your current debt to another credit card company. However, if you go this route, make sure you pay off the balance in full before the promotional rate expires. In past offers, teaser and promotional rates are usually for six to twelve months.
Step 3: Prepare For A Worst Case Scenario
When your coming up with a plan to become debt free, you have to realize that you have to live with less than you currently make. The reason for this is because you never know when you might be laid off from you job, or end with an unexpected expense. However, when you prepare for that rainy day when those unforeseen circumstance occur, you will be ready!
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