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ASSESSMENT OF FINANCIAL BENEFITS OF DEBT MEZZANINE INSTRUMENTS
Abstract
This paper is dedicated to the methodology for evaluating financial benefits of selected mezzanine capital instruments, which refer to hybrid forms of long-term funding combining the features of debt and equity, particularly to those characterized by a higher debt tendency (so-called debt mezzanine instruments). The authors aimed to review the theoretical background of evaluation of financial benefits of classic financing sources and to propose methodology for assessing financial benefits of debt mezzanine instruments. At first, the paper identifies, characterizes and takes a critical look, on the basis of the literature review, into two basic methods of evaluating financial benefits of classic financing sources, i.e. a method based on the weighted average cost of capital and a method based on financing effectiveness criteria in the form of the internal rate of return on capital and the net present value of capital. Next, the authors propose methodology for evaluating debt mezzanine instruments on the cost rate principle for participating loans, subordinated loans, participating bonds, subordinated bonds, convertible bonds and bonds with warrants.
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Tetrevova L., Svedik J., Assessment of financial benefits of selected mezzanine financing instruments, 9th International Scientific Conference “Business and Management 2016”, Vilnius Gediminas Technical University, Vilnius, Lithuania, 2016. DOI: 10.3846/bm.2016.02
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