Mezzanine Debt

Definition

A hybrid form of financing that sits between senior debt and equity in the capital structure, typically unsecured or subordinated to senior lenders. Mezzanine debt carries higher interest rates than senior debt (often 12-20%) and frequently includes equity kickers such as warrants or conversion rights. It is commonly used in leveraged buyouts to bridge the gap between senior debt capacity and the equity contribution, enabling higher leverage without diluting the sponsor's equity position.