Mezzanine Debt
A hybrid financing instrument ranking between senior debt and equity, typically carrying a higher interest rate and often including equity warrants.
Also known as: Mezz, Mezzanine, Junior debt
One-line definition
Mezzanine is the filling in the capital structure sandwich — more expensive than senior debt but cheaper than equity, bridging the gap in leveraged transactions.
Key features
- Ranks junior to senior debt (paid after senior in a waterfall).
- Higher coupon (cash or PIK).
- Often includes equity kickers (warrants) for upside participation.
- Typically unsecured or second-lien.
When used
Mezzanine fills the gap when senior debt alone is insufficient to finance an acquisition at the target leverage level.
Related terms
Senior Debt
The highest-ranking debt in a capital structure, with priority claim on assets and cash flows, typically provided by banks or institutional lenders.
Unitranche
A single blended debt facility combining senior and subordinated debt into one instrument at one blended rate, popular in mid-market PE deals.
PIK (Payment in Kind)
A debt instrument where interest is not paid in cash but instead added to the principal balance, preserving cash flow for the borrower.
LBO (Leveraged Buyout)
An acquisition financed primarily with debt, where the target's cash flows service the leverage and equity returns are amplified.