Warrant

A warrant is a contractual right to buy equity in the company at a fixed price (the strike) for a defined period (the exercise window). It's the equity sweetener that gets included on many mezzanine facilities and convertible notes — the upside payment the lender takes in exchange for accepting subordinated debt risk at a coupon lower than pure equity would demand.

The economics turn on the strike price relative to the exit valuation. A warrant struck at $1.00 per share, exercised when the company sells for $5.00 per share, captures $4.00 per warrant share at exit. On a meaningful mezz facility this can be the single largest economic component of the deal — the warrant pays out far more than the coupon over the deal's life. The CPA models warrant economics under realistic, base-case, and downside exit scenarios.

Warrant terms are negotiable. Coverage (warrants on what percentage of fully-diluted equity), strike (most favoured: current preferred-share price), exercise window (typically 7–10 years), anti-dilution protection, and net-exercise mechanics all live in the warrant agreement. The mezz term sheet's warrant section is often more consequential than the coupon section.