Junior debt that sits between senior debt and equity in the capital structure. Carries high all-in cost — typically cash interest of 8-10% plus PIK interest of 3-5% (with PIK compounding into principal rather than paid in cash). Often includes equity warrants (right to buy equity at a favorable strike) giving the lender upside participation. Most common in middle-market LBOs and growth-financed acquisitions where senior debt capacity is exhausted but the sponsor wants additional leverage without writing more equity.