On NPD projects banked to date, junior finance has only been provided by way of subordinated debt. It is for the bidders on each project to present solutions that best fit the individual project circumstances. These solutions may include alternative finance structures such as mezzanine debt.
Subordinated debt solutions create an "equity-like" structure. The subordinated debt is not counted as debt in the calculation of lenders' ratios (e.g. the debt service cover ratio) which results in lower levels of cash reserve requirements in the financial model. It is priced akin to equity and is therefore likely to have a higher coupon than other forms of junior debt, leading to a higher weighted average cost of capital.
Mezzanine debt may in some structures be treated as a "debt-like" instrument and therefore be included as debt in the calculation of lenders' ratios (e.g. the total debt service cover ratio). A financing structure such as this may lead to a lower weighted average cost of capital but may have greater reserving requirements.
Which solution results in a lower unitary charge will depend on whether the impact of any inclusion/exclusion from lenders' ratios and cash reserve requirements outweighs any higher/lower cost of capital.