How ESOPs are financed?

If the business outlook for an ESOP enterprise is strong, it should be possible to attract at least two forms of debt financing; 1) conventional commercial bank debt and 2) “mezzanine” debt that, together with investor and potentially employee equity, can generate sufficient funds to acquire large corporations.  Since it occupies a higher risk position, mezzanine debt commands a high interest rate. One reason that mezzanine investors are ready to compete in order to invest in ESOP transactions is that S Corporation ESOP investments are a unique niche. They are the only targets for investment that are “tax-free” from an operating company standpoint.  Presuming that the investment target – in this case a group of Blethen Maine Newspapers (or potentially individual newspapers) – is profitable, the “premium” afforded by being both profitable and “tax-free” at the corporate level makes S Corporation ESOPs uniquely attractive to mezzanine debt investors.

In the case of the Blethen Maine newspapers, the S Corporation ESOP strategy may or may not be explored by potential lead investment groups along with more conventional ownership strategies. The primary objectives of the TNG-CWA effort is to preserve the commitment that union workers have to the profession of journalism, within companies that are well funded enough to invest and prosper in competitive media markets over the long term.