Mezzanine debt sits between senior debt and equity in the capital stack. It is subordinated to senior lenders, often unsecured or second-lien, and priced higher to reflect greater risk. It may include payment-in-kind (PIK) interest or equity-style features such as warrants.
It bridges the gap between available senior debt and equity, reducing the equity a sponsor must contribute.
Used in real estate development, leveraged buyouts and growth financing.
Mezzanine debt sits between senior debt and equity in the capital stack. It is subordinated to senior lenders, often unsecured or second-lien, and priced higher to reflect greater risk. It may include payment-in-kind (PIK) interest or equity-style features such as warrants.
Used in real estate development, leveraged buyouts and growth financing.
No. Mezzanine debt is a loan — subordinated to senior lenders, with contractual interest that may include a payment-in-kind element — while preferred equity is an ownership interest carrying a preferred return rather than a debt claim. Both sit between senior debt and common equity, but they differ in ranking, rights and remedies.
A borrower uses mezzanine debt when senior lenders will not fund the full amount required and the sponsor wants to limit the equity it contributes. It bridges that gap in real estate development, leveraged buyouts and growth financings, accepting higher pricing in exchange for less dilution and a larger overall facility.
Speak to a partner about how this applies to your transaction.
