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Learn how to structure a $100M+ Canadian recapitalization using senior debt, ABL, mezzanine and equity without overloading cash flow.
A $100 million recapitalization is not simply a larger business loan.
At this size, the company may be refinancing existing debt, creating shareholder liquidity, buying out an investor, funding expansion, strengthening working capital, financing an acquisition or doing several of those things at once.
The financing therefore needs to be designed as a capital stack, with each layer assigned a specific job, repayment profile, collateral position and risk level.
Quick Answer: A $100 million+ recapitalization in Canada should be built around the company’s durable cash flow, collateral and post-closing liquidity, not the maximum leverage available. The strongest structures usually combine senior secured debt with an operating facility, then add mezzanine or preferred equity only where senior debt stops being efficient or safe.
For companies considering a recapitalization alongside an acquisition, Mehmi's guide to M&A financing for Canadian business acquisitions explains why large transactions are usually better treated as capital-structure problems instead of single-loan requests.
A recapitalization changes how a business is financed without necessarily changing the underlying operating business.
A Canadian company might replace an existing lender syndicate, move expensive junior debt into a lower-cost structure, add leverage to create shareholder liquidity, bring in a minority investor, refinance a pending maturity, fund major capital expenditures or reposition the balance sheet ahead of an acquisition or ownership transition.
The transaction could involve $100 million of new capital, or it could involve restructuring more than $100 million of existing obligations with only a portion of the proceeds representing new liquidity.
That distinction matters.
Credit providers will want a detailed sources-and-uses schedule showing exactly where every dollar goes. “General corporate purposes” is rarely enough to explain a nine-figure recapitalization.
If part of the transaction is simply replacing existing obligations, Mehmi's overview of how business refinancing works in Canada provides useful background on the basic refinance logic. A $100 million transaction applies the same principle on a much more complex scale.
Senior secured debt normally provides the foundation.
This is generally the lowest-risk debt because the lender receives priority security and contractual protections. Depending on the business, senior financing could include a term loan, revolving credit facility, asset-based revolver, equipment facilities, mortgages or several facilities operating together.
BDC's Canadian acquisition-financing guidance illustrates the same fundamental hierarchy: senior debt is typically secured against company assets, while mezzanine and equity absorb progressively more risk.
For a recapitalization, senior debt should generally fund the portion of the transaction that the company's recurring cash flow and recoverable asset base can comfortably support.
The mistake is assuming that because senior debt is cheaper than junior capital, the company should maximize it.
A recap that leaves the company with almost no covenant headroom, no acquisition capacity and no room for an earnings miss may be cheaper on closing day but far more expensive strategically.
For companies with significant accounts receivable, inventory or other eligible collateral, an asset-based lending facility can sit beside the senior term debt instead of forcing the entire transaction into one amortizing loan.
An ABL revolver is particularly useful when working-capital needs fluctuate.
Rather than permanently borrowing $30 million to cover seasonal receivable and inventory peaks, the company may be able to draw against a borrowing base and reduce the balance when cash converts.
Mehmi's Asset-Based Lending Canada guide explains the broader structure, while the ABL borrowing-base guide goes deeper into eligible receivables, inventory and lender reporting.
This separation is important in a recapitalization. Long-term shareholder liquidity should generally not be funded with a revolver intended to finance short-term working capital.
Match the maturity of the capital to the life of the need.
Junior debt can bridge the gap between what senior lenders will prudently provide and what shareholders are prepared to contribute or dilute.
Mezzanine debt generally sits behind senior creditors and therefore carries greater risk and higher pricing. It may also provide greater flexibility around principal amortization, collateral and repayment scheduling.
BDC notes that mezzanine financing can offer flexible repayment terms and can be based primarily on historic and projected cash flow rather than specific collateral.
That flexibility can be valuable when a recapitalization includes growth investment or shareholder liquidity but the business would struggle with aggressive near-term principal payments.
Mehmi's guide to mezzanine financing for large Canadian projects covers subordination, intercreditor agreements and the role junior capital can play between senior debt and equity.
Junior debt should not be used simply because shareholders do not want to invest additional equity. If the operating business does not generate enough cash to support the debt stack in a downside case, adding another layer of expensive leverage generally makes the problem worse.
Preferred equity becomes useful when the company needs permanent or patient capital but existing owners want to limit common-equity dilution.
Depending on the negotiated structure, preferred investors may receive a preferred return, liquidation preference, redemption rights, governance protections, conversion rights or other negotiated economics.
Unlike ordinary term debt, preferred equity can sometimes avoid mandatory principal amortization. That can preserve liquidity during an expansion or integration period.
But preferred equity should not be mistaken for “cheap equity.”
A preferred return, redemption premium, warrants, board rights and negotiated investor protections can create a substantial economic cost even when there is no monthly principal payment.
Companies should model the expected exit value of the preferred securities, not simply compare the stated preferred return with a loan interest rate.
If a recap involves issuing preferred shares, common shares or other securities to private investors, Canadian securities counsel should also review the applicable prospectus exemptions and investor eligibility requirements. Regulation/National Instrument 45-106 contains Canada's principal private-placement prospectus exemptions, subject to provincial and territorial securities requirements.
One of the easiest ways to overload a corporate term loan is to finance every asset through the same facility.
A manufacturing company might have real estate, receivables, inventory, CNC equipment, trucks and a large amount of enterprise value. Each asset has a different useful life and recovery profile.
Financeable equipment can sometimes support its own facility instead of consuming senior corporate borrowing capacity.
For companies with substantial equity in existing machinery or fleets, a sale-leaseback structure in Canada or an equipment cash-out refinance may create another source of liquidity.
That does not mean every asset should be financed separately. Too many facilities can create conflicting security interests, reporting obligations and intercreditor negotiations.
The objective is a coordinated stack, not simply more lenders.
Once multiple lenders are involved, the financing cannot be evaluated facility by facility.
The parties need to determine who has first-ranking security over receivables, inventory, equipment, bank accounts, shares of subsidiaries and other collateral, who is subordinated, who can enforce following a default, and what happens to cash proceeds after an asset sale.
In Ontario, creditors taking security over personal property use the Personal Property Security Registration system, and registration helps establish priority among competing interests.
Most Canadian common-law provinces and territories have their own PPSA regimes. Quebec operates under its civil-law system and uses the Registre des droits personnels et réels mobiliers, or RDPRM, to publicize relevant rights affecting movable property and other registered rights.
A $100 million recapitalization therefore needs legal diligence on existing registrations before new lenders commit capital.
An unexpected prior-ranking security interest can change the economics of an otherwise financeable transaction.
At this size, the underwriting conversation shifts away from a simple credit score or several months of bank statements.
Credit teams will usually want to understand normalized EBITDA and free cash flow, historical volatility, maintenance versus growth capital expenditures, customer and supplier concentration, working-capital requirements, existing debt, pension and tax obligations, litigation, asset values, corporate structure and the quality of the management team.
They will also stress the projections.
If revenue falls, margins compress, receivables stretch or a major customer leaves, does the company still have enough liquidity to meet interest, amortization and operating expenses?
The lender will then examine covenant capacity. Common areas include leverage, fixed-charge or debt-service coverage, minimum liquidity, capital-expenditure restrictions, additional-debt restrictions, acquisitions, distributions, asset sales and reporting requirements.
For borrowers deciding how much of the recap should be collateral-backed, Mehmi's comparison of secured and unsecured Canadian business financing provides useful foundational context.
A recapitalization fails if it solves the balance sheet but leaves the operating company short of cash.
Companies should model liquidity after the transaction, not only sources and uses on closing day.
If the business normally needs $25 million of operating liquidity through seasonal peaks, using that same availability for a shareholder distribution can create an immediate funding problem.
Companies with large commercial receivables can also compare an ABL revolver with structures such as invoice factoring in Canada, although institutional borrowers generally need to consider customer notification, concentration limits, existing lender security and the economics of factoring carefully.
If the recapitalization is being completed to support geographic growth, Mehmi's guide to financing expansion into new Canadian provinces also explains why expansion capital and operating liquidity should not automatically be funded with the same instrument.
Debt is not automatically tax-efficient without limit.
Canada's excessive interest and financing expenses limitation, or EIFEL, rules can restrict deductions for affected corporations and trusts. CRA states that for tax years beginning on or after January 1, 2024, the fixed-ratio cap on net interest and financing expenses is generally 30% of adjusted taxable income, although exemptions, group-ratio rules and other provisions may change the result for a particular taxpayer.
For a $100 million+ recap, that means the tax model should be built alongside the financing model.
It is dangerous to assume that every additional dollar of interest expense produces a corresponding deduction.
Cross-border lenders, withholding taxes, transfer pricing, loss pools, corporate reorganizations and the treatment of preferred securities can add further complexity. Canadian tax counsel should review the actual structure before commitments are finalized.
Sometimes, but the method matters.
A leveraged recap may be designed partly to provide liquidity to existing owners through a dividend, share redemption, share repurchase or other reorganization.
Corporate-law solvency requirements cannot be ignored.
For corporations governed by the federal Canada Business Corporations Act, section 42 restricts payment of a dividend where there are reasonable grounds to believe the corporation would be unable to pay liabilities as they become due or would fail the applicable asset test. Sections 34 to 36 impose related restrictions on share purchases and redemptions. Provincial corporate statutes may apply instead to provincially incorporated businesses.
This is one reason a shareholder-liquidity recap should be reviewed by legal and tax advisers before debt sizing is finalized.
A lender being willing to advance the money does not by itself establish that the intended distribution can legally or prudently be made.
Consider an established Canadian industrial company completing a CAD $150 million recapitalization. These figures are hypothetical and are not Mehmi financing terms, market quotes or an indication that a transaction would be approved.
The example illustrates why the headline $150 million amount is not the key decision.
The company has roughly $12 million of annual scheduled payments on the senior term loan alone, plus approximately $4.35 million of annual cash interest on the fully drawn ABL and mezzanine layers before preferred equity distributions, transaction expenses or additional borrowing.
If downside cash flow cannot comfortably support that burden, the correct answer may be more equity, slower amortization, less shareholder liquidity or a smaller transaction.
At institutional transaction sizes, comparing only the coupon can be misleading.
A facility may include an original issue discount, arrangement or underwriting fee, commitment fee on unused revolver capacity, agency fee, appraisal and field-examination expenses, legal costs, diligence expenses, hedging costs, monitoring fees and prepayment premiums.
Junior debt can add exit fees, PIK interest or warrants.
Equity adds an entirely different economic cost because the investor participates in future enterprise value.
Borrowers should therefore model the expected dollar cost under several exit dates, not simply compare stated interest rates.
A company planning to refinance a facility after three years needs to know what the stack costs if the exit happens in year three, not only what the loan would cost if held to contractual maturity.
Bridge financing can make sense when the permanent recapitalization is sound but cannot close before an existing maturity, acquisition deadline or other transaction date.
It should have a clear exit.
Mehmi's guide to commercial bridge loans in Canada explains the distinction between financing a temporary timing gap and borrowing to cover an ongoing structural cash-flow problem.
On a $100 million transaction, a bridge can become especially dangerous if management assumes the permanent financing will be available later on essentially the same terms.
The replacement financing should be underwritten before the bridge is treated as a solution.
A recapitalization does not have to maximize proceeds.
Borrowing less may be appropriate when earnings are cyclical, customer concentration is high, capital expenditures are unavoidable, the company expects acquisitions after closing, or the owners are extracting so much liquidity that the business would be left thinly capitalized.
Waiting may also be appropriate if the company is about to lose a major customer, financial reporting is incomplete, an important legal issue remains unresolved, or lenders cannot obtain a clean collateral position.
Another alternative is to separate the transaction into stages.
The business could refinance existing debt first, establish an operating revolver, complete a growth investment and revisit shareholder liquidity once the new structure has demonstrated sustainable performance.
The most efficient $100 million processes begin with a lender-ready data room rather than a broad request for “financing options.”
Management should be prepared to produce several years of historical financial statements, current interim reporting, a detailed debt schedule, monthly projections, working-capital analysis, customer concentration, capex history, corporate and ownership charts, material contracts, asset schedules, existing security registrations and a detailed sources-and-uses model.
For asset-heavy businesses, independent appraisals may also be required.
The financing model should show a base case and credible downside cases. It should clearly separate maintenance capex from discretionary expansion spending and demonstrate what management would do if the downside case actually occurred.
This is where sophisticated lenders distinguish a financeable recapitalization from an optimistic spreadsheet.
Mehmi Financial Group is a commercial financing broker and intermediary, not a direct lender. Financing decisions, pricing and final terms are determined by third-party capital providers.
For larger and more complex transactions, the value of an intermediary is in structuring the financing request, identifying the appropriate debt and asset-backed components, coordinating with third-party financing sources and presenting the transaction in a form institutional capital providers can underwrite.
At $100 million+, borrowers should also expect specialist legal, tax, accounting and, where applicable, securities advisers to work alongside the financing team.
There is no responsible universal percentage. Senior capacity depends on sustainable cash flow, leverage, asset coverage, industry volatility, existing obligations, required capex and the company's need for liquidity after closing. The goal should be sustainable senior debt, not maximum senior debt.
They solve different problems. Mezzanine can reduce immediate equity dilution but creates interest expense, maturity risk and junior-credit obligations. Equity normally carries no scheduled debt repayment but gives investors an ownership claim and potentially governance rights. The right decision depends on cash-flow capacity and the value owners place on retaining equity.
Yes, shareholder liquidity or ownership restructuring can be part of a recapitalization. However, corporate-law solvency requirements, tax treatment, securities considerations and lender restrictions on distributions need to be addressed before the transaction is completed.
Potentially. Businesses with substantial eligible receivables and inventory may use an asset-based revolving facility as one layer of the overall stack. Availability will depend on collateral eligibility, concentration, reporting quality, prior security interests and lender policy.
Not universally. Guarantee requirements depend on borrower size, ownership structure, leverage, collateral and capital provider policy. Larger institutional transactions may rely predominantly on corporate assets and entity guarantees, while other transactions may require additional sponsor or shareholder support.
There is no universal closing period. Timing depends on financial diligence, quality of earnings work, appraisals, lender approvals, documentation, securities requirements, tax structuring, intercreditor negotiations and whether the capital needs to be syndicated. A complete data room and clearly defined sources and uses can remove avoidable delays.
The core risk is creating a fixed capital burden that the operating company cannot carry through a downturn. A recap can look comfortable using current EBITDA and become restrictive after a modest earnings decline, working-capital increase or unexpected capex requirement. Downside liquidity therefore matters as much as closing leverage.
If your company is evaluating a recapitalization, refinancing, shareholder buyout, acquisition or growth transaction above $100 million, the first step is to define the structure before approaching capital providers.
When contacting Mehmi Financial Group, include the financing amount, Canada as the transaction country, province, intended use of funds and required timing so the transaction can be assessed and directed toward appropriate third-party financing sources.
Call 833-863-4644 or contact Mehmi Financial Group to discuss the proposed capital structure.
Financing is subject to third-party underwriting, due diligence, credit approval and final documentation. Mehmi Financial Group acts as a financing broker and intermediary and does not guarantee approval or financing terms.
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