Like equity, it is largely unsecured in the capital structure and is considered junior to any bank debt. Quasi equity is generally considered as equity from an economic standpoint though it may be classified as debt on the balance sheet. To achieve this without any current return, they need to own massive amounts of shares, which is highly dilutive to a company. Most straight equity investors target 20% per annum as a targeted return. This makes straight equity quite expensive from an owner’s standpoint.
With straight equity, the investor realizes no current return and hence 100% of the return is provided on the back end through an exit. This reduces the level of non-current return required so that the instrument is less dilutive than straight equity. Often a large percentage of total return for the quasi equity provider is provided through current interest and dividend payments. One differentiator denoting quasi equity is the role that periodic interest payments and dividends play. It can be used for anything a company needs including expansion capital, acquisition capital or to recapitalize. Specifically, it can be mezzanine debt, venture debt, convertible debt, structured equity or preferred equity. The capital is less expensive than straight equity, yet provides virtually the same level of value add as a straight equity investment. This form of financing allows the issuer flexibility and value. Quasi Equity describes a form of capital with debt-like properties and equity-like functionality.
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