Debt

The following functionality is not available in the first version of Mezzanine. The foundation for debt assets and debt financing has been properly defined such that these assets can be added modularly to a company's capital stack without requiring any contract upgrades. Debt financing will not be available by default for Mezzanine companies and must be added retroactively. The below documentation is subject to change before being implemented in Mezzanine's smart contracts.

Overview

Debt for Mezzanine companies functions similarly to that of traditional companies. It is money that must be paid back to the lender, which also (usually) includes an interest rate.

Debt is a powerful tool that provides additional ways to access capital with different implications to the organization's capital structure.

Debt in Mezzanine will always be senior to a company's common and preferred shares in the capital stack, limiting its risk profile at the cost of investor upside.

Debt will always be denominated in the company's denomination asset, which will be a stablecoin. The purchase of a company's bonds, its coupon payments, and the repayment of its principal will be paid in the company's denomination asset. A company's denomination asset is determined during its creation and cannot be changed. All interest and principal payments will come directly from the company's treasury.

Debt Tranches

There may be different tranches of debt that have varying seniority over each other. In the event of a company's recapitalization or liquidation, debt higher in the capital stack will be paid out before the debt assets that are below them.

Programmatic Liens

The repayment of the principal and interest are obligatory payments that constitute a lien on the company's assets, cashflows, and capital structure.

It is a serious decision for a company to issue debt. If the principal or interest of a debt asset is not paid according to the agreed payment schedule, the creditor will take ownership of the company via the recapitalization process. Before this occurs, Mezzanine companies have a built-in grace period to catch up on payments and re-enter good standing.

Investors, creditors, and founders enjoy completely unambiguous terms and conditions. Programmatic processes enable simulation, since the code dictates the terms rather than the usual paper documents that could be misinterpreted. Paper documents (understandable by lawyers and regulators) can be generated to describe and reflect the terms and conditions written into the smart contracts.

Initial Debt Implementations

Initial implementations of debt will reflect normal debt structures. Debt products will include a coupon rate, maturity date, and frequency of coupon payments.

• Bonds: Incremental payments of a fixed amount of money, known as coupons. The principal amount will be paid back at the end of the loan.

• Bullet Bonds: Principal and interest are all back at the end of the loan period with interest, all at once.

• Amortized Bonds: Payments are made regularly each period in equal payments. The principal amount is not paid back at the end of the loan. Instead, payments are made in equal quantities such that the principal is repaid by the bond's maturity.

Debt Offerings

Debt will be sold via offerings, which can be completed via a sale or auction. For example, we will provide an implementations for white listed debt sales, dutch auctions, and more.

Irrespective of the method used for offerings, a company will need to determine:

• The type of debt asset being offered

• The maturity date of the debt asset

• A coupon rate

• Frequency of coupon payments

• The amount of debt being offered

Assuming that the face value of each bond is standardized, the yield-to-maturity can subsequently be calculated from the provided variables and the investor's bid.

Both investors and companies benefit from debt built with immutable, open-source smart contracts. Investors can participate in debt offerings that they would otherwise not due to a lack of resources or connections, while companies will acquire a lower cost of capital stemming from greater demand.