Structured Credit for Corporates: Mezzanine, NCDs, Bridge Loans Explained

Structured credit sits between senior bank debt and equity in the capital structure. It's the layer that handles complexity — situations that standard bank lending can't accommodate and where equity dilution is too expensive.

Why structured credit exists

Banks are good at certain types of lending: working capital against current assets, term loans against hard collateral with predictable repayment. They're less good at: subordinated debt, transactions with complex repayment profiles, bridge situations, or lending where the primary repayment is an event (asset sale, equity raise) rather than operating cash flow. Structured credit fills this space, usually at a higher cost than senior debt but at a fraction of the cost of equity.

Mezzanine debt — the equity-saver

Mezzanine is subordinated to senior debt (meaning senior lenders get paid first in a default) but ahead of equity. It typically carries a higher interest rate (15–22% for Indian transactions) plus sometimes an equity kicker — a small warrant or IRR participation. For promoters trying to fund growth without diluting equity, mezzanine preserves more upside than bringing in a new equity investor at the same stage. It's particularly common in leveraged buyouts, management buyouts, and late-stage growth financing.

NCDs placed with institutional investors

Non-Convertible Debentures can be privately placed with mutual funds, insurance companies, family offices, or other institutional investors. The advantage over bank debt: faster execution (no credit committee bureaucracy), cleaner documentation, and no relationship management post-close. The rate is market-determined and published. For ₹25Cr+ requirements, NCDs are often competitive with bank term loans, especially for companies with public credit ratings.

Bridge loans — financing the gap

A bridge loan is a short-term, high-conviction loan that bridges a specific, visible repayment event. A company waiting for a property sale proceeds uses a bridge against the expected proceeds. A pre-IPO company bridges to the IPO. A company in refinancing uses a bridge to prepay the existing facility before the new one closes. Bridge loans are expensive (typically 18–24%) but the cost is acceptable because they're short — usually 3–12 months — and they enable a transaction that creates more value than the financing cost.