RBS puts pounds 150m into mezzanine financing

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The Independent Online
Royal Bank of Scotland is putting pounds 150m into a new business that will offer mezzanine financing, often used to fund management buyouts and buy-ins.

Leith Robertson, managing director of RBS Mezzanine, the new venture, said the bank would consider bringing partners into the project but said it was "not really" in talks with any interested parties.

Mr Robertson, who has run the bank's acquisition finance unit since 1993, intends to recruit two executive directors for RBS Mezzanine and up to three support staff.

"The Royal Bank has a successful history of growing new businesses to meet specific market needs and, knowing the debt market as we do, we have identified a demand for these types of specialist products in deals of pounds 20m or more," he said.

Mezzanine finance is used to plug the gap between traditional debt or equity funding. It is more leveraged than debt and usually makes up only a small proportion of any deal. A management buyout worth pounds 100m would typically comprise pounds 50m of debt and pounds 40m of equity with the remaining pounds 10m coming from mezzanine finance.

"Mezzanine, in its broadest sense, has become an increasingly used tool since the advent of leveraged acquisitions in the late Eighties, but our announcement marks an expansion in the range of debt products available to our customers," Mr Robertson said. He expects the mezzanine loans to be of a duration of eight to 10 years.

RBS will compete for business with established providers of mezzanine finance such as Intermediate Capital Group, which last year noted that as banks were becoming increasingly cash-rich they were more willing to lend more traditional forms of debt in place of what might have been mezzanine finance.

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