The Mezzanine Debt Term Sheet is typically used in German financing transactions where companies seek funding that sits between senior debt and equity in the capital structure. This document is essential in the preliminary stages of mezzanine financing arrangements, setting out the fundamental commercial and legal terms that will form the basis of the final financing documentation. It is particularly relevant for growth financing, acquisition financing, or restructuring scenarios where traditional bank financing may be insufficient or unavailable. The term sheet must carefully consider German legal requirements, particularly regarding subordination, insolvency rankings, and financial services regulations. It serves as a roadmap for lawyers drafting the final documentation and provides key stakeholders with a clear understanding of the proposed terms.
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1. Parties: Identification of the borrower, lender(s), and any guarantors
2. Background: Brief description of the transaction context and purpose of the mezzanine financing
3. Definitions: Key terms used throughout the term sheet
4. Facility Amount: Size of the mezzanine facility and any tranching details
5. Purpose: Specified use of proceeds
6. Term and Maturity: Duration of the facility and maturity date
7. Interest and Payment Terms: Interest rate, payment frequency, PIK options
8. Security and Ranking: Security package and ranking in capital structure
9. Financial Covenants: Key financial ratios and tests to be maintained
10. Events of Default: Circumstances triggering default
11. Conversion Rights: Terms of any equity conversion features
12. Exit and Prepayment: Prepayment terms, exit fees, make-whole provisions
13. Representations and Warranties: Standard confirmations from the borrower
14. Information Rights: Reporting requirements and information access
15. Governing Law: Specification of German law as governing law
1. Warrant Coverage: Details of any warrant package, used when equity kickers are part of the structure
2. Intercreditor Terms: Required when there are multiple classes of debt in the structure
3. Asset Sale Provisions: Include when specific assets might be sold during the term
4. Board Rights: When lender requires board representation or observer rights
5. Currency and Hedging: Required for cross-border transactions or multiple currency facilities
6. Tax Considerations: Include when specific tax structures or implications need to be addressed
7. Change of Control: Include when specific provisions for ownership changes are required
8. ESG Provisions: When environmental, social, and governance requirements are part of the facility
1. Capital Structure: Overview of the existing and pro forma capital structure
2. Financial Covenant Calculations: Detailed definitions and calculation methodologies
3. Permitted Indebtedness: List of existing and permitted debt obligations
4. Security Package Details: Detailed list of collateral and security arrangements
5. Warrant Terms: Detailed terms of any warrant coverage
6. Corporate Structure: Group structure chart showing relevant entities
7. Key Terms Matrix: Summary comparison of key terms across debt tranches
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