Senior debt: financing floor
Senior debt remains the cornerstone of any hotel structure. It usually accounts for 50-65% of the total cost of the operation and is given priority for reimbursement. Banks require a minimum DSCR of 1.25× based on a conservative business plan.
Lender institutions are now looking at the operating history, the quality of management and the strength of market benchmarks before granting financing. A file presented with a complete decision engine simulation (TRI, cash flow, RevPAR) significantly shortens the time taken for analysis.
Mezzanine: lever or risk?
Mezzanine debt closes the gap between equity and senior debt. Paid at 8 to 14% depending on the project profile, it increases the leverage without diluting the shareholder, but requires an irreproachable financial discipline.
In case of difficulty, mezzanine lenders are repaid after senior debt but before equity. Risk tolerance is therefore higher in exchange for higher yield. This compartment is suitable for projects with strong visibility on the operation from Year 2.
Our perspective
Good financial structuring is not the one that maximizes the leverage: it is the one that resists operating hazards while offering attractive returns to capital providers.
