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Mezzanine Finance vs Loan Stock

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Mezzanine Finance vs Loan Stock

  • This topic has 3 replies, 2 voices, and was last updated 3 years ago by John Moffat.
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  • September 27, 2021 at 10:13 am #636577
    zaki090
    Member
    • Topics: 5
    • Replies: 5
    • ☆

    What is the differences between Mezzanine Finance and loan stock?
    In both cases stock is used as security collateral. And if the issuer company is unable to pay then the loan converted into stock.
    so whats the differences?

    September 27, 2021 at 5:42 pm #636610
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    Loan stock does not use shares as collateral. It is usually secured on the assets of the company and is therefore the least risky for investors (because they get their money first if the company goes bankrupt).

    Mezzanine finance is not secured on the assets but it usually convertible into shares. It is therefore more risky than pure debt finance (such as loan stock) but less risky than investing directly in shares. (That is why it is called ‘mezzanine’ because it lies between the two, just as the mezzanine in a building is a bit like a balcony and is half way between the ground floor and the floor above.)

    (Shares are not called ‘stock’ in the UK nor in the ACCA exams 🙂 )

    September 28, 2021 at 12:58 am #636627
    zaki090
    Member
    • Topics: 5
    • Replies: 5
    • ☆

    thanks

    September 28, 2021 at 6:47 am #636630
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    You are welcome 🙂

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