The Mezzanine Loan Term Sheet is a crucial document used in complex financing transactions where there is a need for additional funding beyond senior debt but before pure equity. This document is typically employed when companies require growth capital, acquisition financing, or real estate development funding in Hong Kong. The term sheet sets out the principal terms and conditions of the mezzanine facility, including the unique aspects of subordination to senior debt and any equity-linked components. It serves as a roadmap for the transaction and forms the basis for the preparation of detailed facility documentation, incorporating specific requirements under Hong Kong law and market practice. The document is particularly important as it addresses the hybrid nature of mezzanine financing, combining elements of debt and equity, and establishes the framework for intercreditor relationships.
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1. Parties: Identification of the lender, borrower, guarantors (if any), and security providers
2. Background: Brief description of the transaction and its purpose
3. Definitions: Key terms used throughout the term sheet
4. Facility: Type, purpose, and amount of the mezzanine facility
5. Interest and Fees: Interest rate, payment frequency, upfront fees, commitment fees, and any PIK provisions
6. Term and Repayment: Facility duration, repayment schedule, and prepayment terms
7. Security Package: Description of all security to be provided, including second-lien security interests
8. Conditions Precedent: Key conditions to be satisfied before drawdown
9. Key Covenants: Financial and operational covenants, information requirements
10. Events of Default: List of key events triggering default
11. Subordination: Terms of subordination to senior debt and intercreditor principles
12. Assignment and Transfer: Terms governing transfer of loan participation
13. Governing Law: Specification of Hong Kong law and jurisdiction
1. Equity Kickers: Terms of any equity participation rights, warrants, or conversion features - include if equity upside is part of the transaction
2. Board Rights: Any board representation or observer rights granted to the mezzanine lender - include if lender requires governance participation
3. Exit Rights: Terms governing exit mechanisms including tag-along/drag-along rights - include if relevant to the transaction structure
4. Senior Debt Terms: Key terms of interaction with senior debt - include if senior debt exists or is contemplated
5. Hedging Requirements: Any mandatory hedging obligations - include if required for interest rate or currency risk management
1. Term Sheet Summary: Executive summary of key commercial terms in table format
2. Corporate Structure Chart: Diagram showing the corporate structure and security package
3. Sources and Uses: Breakdown of funding sources and intended use of proceeds
4. Financial Covenants Schedule: Detailed financial covenant calculations and thresholds
5. Key Milestones: Timeline of key dates and deliverables for transaction completion
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