Mezzanine Debt
Corporate Credit Analysis glossary · Capital Structure & Debt Mechanics
Definition
Subordinated debt typically structured as unsecured notes with equity-kicker features (warrants or PIK toggles), positioned between senior debt and equity in the capital structure; common in middle-market LBOs.
Mezzanine Debt in plain English
Mezzanine debt is the money that sits in the awkward middle of a company's funding stack — riskier than the safe senior loans that get paid back first, but safer than the stock owners who get paid last. Because it takes on more risk, it demands more reward: on top of high interest, lenders often get an 'equity kicker' — a side bonus tied to the company's success, like warrants (the right to buy stock cheaply later) or PIK toggles (an option to pay interest with more debt instead of cash when money is tight). It's most common in buyouts of mid-sized companies, where it fills the gap between what the banks will lend and what the buyers can put in themselves. Think of it as the mezzanine level of a theater — literally between the ground floor and the balcony — bridging the safest lenders and the risk-taking owners.
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