Mezzanine Debt Term Sheet Template for the United Arab Emirates

A Mezzanine Debt Term Sheet is a critical preliminary document that outlines the key terms and conditions for mezzanine financing arrangements in the United Arab Emirates. This document serves as a roadmap for structuring hybrid debt-equity financing that sits between senior debt and equity in a company's capital structure. You'll use this term sheet to establish the framework for negotiations before moving to definitive legal documentation, ensuring all parties understand the commercial terms and legal obligations under UAE law.

When do you need this document?

You need a Mezzanine Debt Term Sheet when your company requires growth capital but wants to avoid excessive dilution of existing shareholders' equity. This financing structure is commonly used in leveraged buyouts, management buyouts, expansion financing, and recapitalization transactions. The mezzanine layer typically provides higher returns to lenders than senior debt while offering borrowers more flexible terms than traditional equity financing. You'll find this particularly valuable when senior lenders have reached their maximum exposure but additional funding is required to complete a transaction or support business growth initiatives.

Key legal considerations

Your Mezzanine Debt Term Sheet must carefully address several critical legal elements to ensure enforceability and protection for all parties. The intercreditor arrangements between senior and mezzanine lenders require detailed structuring to establish payment waterfalls, enforcement rights, and standstill provisions. You need to clearly define the security package, including any subordination agreements and shared security arrangements. The pricing structure often includes both cash interest and payment-in-kind components, along with equity kickers such as warrants or conversion rights. Default provisions and remedies must be carefully calibrated to balance lender protection with borrower operational flexibility. Corporate guarantee structures and personal guarantees from key shareholders or management require specific attention to enforceability requirements.

Legal requirements in United Arab Emirates

Under UAE Federal Law No. 32 of 2021 (Commercial Companies Law), your mezzanine financing structure must comply with corporate borrowing limitations and board authorization requirements. The UAE Federal Law No. 5 of 1985 (Civil Transactions Law) governs the contractual framework, requiring clear terms for formation and enforcement of obligations. You must ensure compliance with UAE Federal Law No. 14 of 2018 (Central Bank Law) regarding financial regulations and any licensing requirements for lenders. Security interests and guarantees must be properly documented and registered according to UAE law to ensure enforceability. Cross-border elements may trigger additional regulatory requirements under UAE foreign investment laws. The term sheet should also address UAE Federal Decree Law No. 9 of 2016 (Bankruptcy Law) implications for creditor rights and recovery procedures in distressed scenarios.