UPDATE 3-RLPC-Securitas Direct buyout switches to mezzanine

* Securitas Direct revives mezzanine loan market

* Switch to mezzanine shows high-yield bond dislocation

* Banks bear cost of mezzanine substitution (Adds banks paying mezzanine costs, mezzanine terms)

By Claire Ruckin and Tessa Walsh

LONDON, Aug 16 (Reuters) - Swedish alarm maker Securitas Direct has replaced a bridge loan to a planned high-yield bond with a 393.5 million euro ($568 million) mezzanine loan as part of its buyout financing, as Europe's high-yield bond market remains closed.

The largest European mezzanine loan of 2011 replaces the underwritten, unsecured high-yield bridge loan in full and shows that alternative sources of financing are available in volatile markets, banks arranging the deal said.

Private equity firms Bain Capital and Hellman and Friedman bought Securitas Direct from sponsor EQT in June in a deal that valued the company at about 21 billion Swedish crowns ($3.3 billion).

The banks which underwrote the highly leveraged 1.4 billion euro buyout -- Morgan Stanley, Goldman Sachs, Bank of America Merrill Lynch, Nordea Bank, Nomura and HSBC -- are bearing the costs of substituting the more expensive mezzanine loan for the high-yield bond bridge to reduce their exposure, several sources said.

The financing package was agreed before the markets turned, with aggressive leverage ratios of seven times debt to earnings before interest, tax, depreciation and amortisation (EBITDA).

The mezzanine loan replaces a planned 395 million euro subordinated high-yield bond, which banks are now unable to issue as the bond markets remain closed.

The terms of the subordinated bond were struck at the peak of the market with a cap of 11.5 percent, banking sources away from the deal said, but banks are currently unable to issue.

The deal also included a 1 billion euro senior secured high-yield bond and a 280 million senior revolving credit, both of which remain unchanged. The deals were expected to be syndicated in September but timing is subject to market conditions.

Mezzanine loans typically pay higher returns than high-yield bonds and are usually an expensive option for banks leading debt financings and private equity firms, banking sources said.

The mezzanine loan is priced at 3.75 percent cash over Euribor and 6.75 percent on Payment In Kind over Euribor. A three percent discount to 97 percent of face value will also be paid by the underwriting banks to boost the return, a source close to the deal said.

The private equity firms have retained some financial flexibility as the mezzanine loan is structured with high-yield style covenants to match the senior bridge loan, which effectively makes the mezzanine loan a covenant-lite loan, the source added.

The 393.5 million euro mezzanine loan was provided by mezzanine lenders MezzVest, Partners Group, Noonday, Sankaty and EQT Partners. ($1 = 0.692 Euros) (Reporting by Claire Ruckin and Tessa Walsh; Editing by Will Waterman and David Hulmes)