Question 3 A lender bank has agreed senior debt terms to a client at a loan...

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Question 3 A lender bank has agreed senior debt terms to a client at a loan to value ratio of 50% to part finance a value-added investment. The client's after debt net cash flow is shown below: Senior Debt only Net Cash Flows Year 0 -16,500,000 DSCR Year 1 174,789 1.63 Year 2 343,593 Year 3 23,465,974 1.83 2.02 You have been asked to look at the potential to increase the debt facility by including a lookback mezzanine structure. Current mezzanine providers for this type of asset ask for a minimum 10% IRR exclusive of fees but the facility must be cash flow positive out of operating cash flows. Propose terms you would recommend for the mezzanine piece to meet the client's required return of 15.0%. Show both the client's and the mezzanine provider's cashflows. If you do not consider the client's required return to be possible, could the structure be modified to provide an equitable outcome? Explain how this might be achieved. Show your proposed cash flow and fully explain your inputs and calculations. Question 3 A lender bank has agreed senior debt terms to a client at a loan to value ratio of 50% to part finance a value-added investment. The client's after debt net cash flow is shown below: Senior Debt only Net Cash Flows Year 0 -16,500,000 DSCR Year 1 174,789 1.63 Year 2 343,593 Year 3 23,465,974 1.83 2.02 You have been asked to look at the potential to increase the debt facility by including a lookback mezzanine structure. Current mezzanine providers for this type of asset ask for a minimum 10% IRR exclusive of fees but the facility must be cash flow positive out of operating cash flows. Propose terms you would recommend for the mezzanine piece to meet the client's required return of 15.0%. Show both the client's and the mezzanine provider's cashflows. If you do not consider the client's required return to be possible, could the structure be modified to provide an equitable outcome? Explain how this might be achieved. Show your proposed cash flow and fully explain your inputs and calculations.