When you invest in a bond, one of the most basic things you need to know is the expected return. That’s where yield to maturity comes in. Also known as the internal rate of return for a bond, yield to maturity is the annual rate of return assuming a bond is held to maturity and all of the interest payments are reinvested at the original rate. It’s the most commonly used way to look at a bond’s expected return.
Mezzanine debt capital generally refers to that layer of financing between a company’s senior debt and equity, filling the gap between the two. Structurally, it is subordinate in priority of payment to senior debt, but senior in rank to common stock or equity (Exhibit #1). In a broader sense, mezzanine debt may take the form of convertible debt, senior subordinated debt or private “mezzanine” securities (debt with warrants or preferred equity). Mezzanine capital is typically used to fund a growth opportunity, such as an acquisition, new product line, new distribution channel or plant expansion, or in private business’ for the company owners to take money out of the company for other uses or to enable management to buyout company owners for Mezzanine Finance 3succession purposes. Although it makes up a portion of a company’s total available capital, mezzanine financing is critical to growing companies and in succession planning in recent years.