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How Mezzanine Debt Pricing Works

How Mezzanine Debt Pricing Works

Submitted by • March 17, 2020

Mezzanine debt loans are not publicly traded instruments but are part of the private debt market. As such, loan pricing is influenced by several component costs such as cost of funds, overhead and loan loss reserves. Furthermore, the ultimate pricing for the borrower is influenced by the underlying credit risk of the borrower. The managers of mezzanine debt funds, not unlike any asset managers any financial asset, have a targeted rate of return for all assets they invest. The portfolio yield is set at a level to cover all the fixed costs, costs of funds and investor profits.

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