Mezzanine Debt Term Sheet for Malaysia

Mezzanine Debt Term Sheet Template for Malaysia

A Mezzanine Debt Term Sheet under Malaysian law outlines the key terms and conditions for a hybrid financing instrument that combines elements of debt and equity. This document serves as the foundation for subsequent definitive agreements, detailing the proposed terms of the mezzanine facility, including interest rates, repayment terms, security arrangements, equity participation rights, and key covenants. The term sheet must comply with Malaysian financial regulations, particularly the Companies Act 2016 and Capital Markets and Services Act 2007, while addressing both the debt components and equity-like features typical of mezzanine financing structures.

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What is a Mezzanine Debt Term Sheet?

The Mezzanine Debt Term Sheet is a preliminary document used in Malaysian financing transactions to establish the framework for a mezzanine debt facility, which sits between senior debt and equity in the capital structure. This document is typically used when companies require growth capital, acquisition financing, or restructuring support, but either cannot or choose not to rely solely on conventional bank debt or equity funding. The term sheet outlines the proposed terms of the facility, including both debt characteristics (interest rates, repayment terms, security) and equity features (warrants, conversion rights, board representation). It serves as the basis for negotiation and subsequent preparation of definitive financing agreements, ensuring alignment between the mezzanine lender and the borrower on key commercial and legal terms while complying with Malaysian financial regulations and market practices.

What sections should be included in a Mezzanine Debt Term Sheet?

1. Parties: Identification of the borrower, lender, and any guarantors or key stakeholders

2. Transaction Overview: Brief summary of the proposed mezzanine financing structure and purpose

3. Facility Amount: Size of the mezzanine facility and any tranching details

4. Purpose: Intended use of proceeds

5. Interest Rate and Payment Terms: Details of interest rate structure, including cash pay and PIK components

6. Maturity and Repayment: Term of the facility and repayment structure

7. Security and Ranking: Position in the capital structure and any security requirements

8. Equity Kicker: Details of warrants, conversion rights, or other equity participation

9. Key Covenants: Financial and operational covenants

10. Events of Default: Circumstances triggering default

11. Conditions Precedent: Key conditions to be satisfied before funding

12. Fees: All applicable fees including arrangement, commitment, and exit fees

What sections are optional to include in a Mezzanine Debt Term Sheet?

1. Mandatory Prepayment: Include when specific events requiring mandatory prepayment need to be defined

2. Board Rights: Include when lender requires board representation or observer rights

3. Information Rights: Include when specific reporting requirements beyond standard covenants are needed

4. Intercreditor Provisions: Include when there are multiple classes of debt requiring priority arrangements

5. Exit Rights: Include when specific provisions for IPO or sale scenarios are required

6. Tag-Along/Drag-Along Rights: Include when equity-like features require specification of shareholder rights

What schedules should be included in a Mezzanine Debt Term Sheet?

1. Cap Table: Current and pro forma capitalization of the borrower

2. Sources and Uses: Detailed breakdown of funding sources and intended uses

3. Financial Covenant Calculations: Detailed methodology for calculating financial covenants

4. Warrant Terms: Detailed terms of any warrant instruments

5. Corporate Structure Chart: Organization chart showing corporate structure and security package

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

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Relevant Teams

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Chief Financial Officer

Finance Director

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Investment Director

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Commercial Director

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What is a Mezzanine Debt Term Sheet?

What sections should be included in a Mezzanine Debt Term Sheet?

What sections are optional to include in a Mezzanine Debt Term Sheet?

What schedules should be included in a Mezzanine Debt Term Sheet?

Authors

Alex Denne

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