Mezzanine financing.

In plain English

Mezzanine financing sits between senior secured debt and equity in a company's capital structure, which is where the name comes from. It is repaid only after the senior lenders are satisfied, so it carries more risk and a higher interest rate. Many mezzanine deals attach warrants or a conversion right, letting the lender take equity if the company does well, which is how the lender gets paid for the extra risk. Part of the interest is often paid in kind, meaning it is added to the loan balance instead of being paid in cash, easing near-term strain on the borrower. It is common in buyouts and expansions where senior lenders will not fund the whole amount.

01Why it matters

Mezzanine debt lets a deal get done that senior lenders alone would not fund, but it stacks another claim ahead of the owners, so common shareholders absorb losses first.

02The math, step by step

Say a $100,000,000 purchase is funded with $50,000,000 senior debt, $20,000,000 mezzanine, and $30,000,000 equity. If the business later sells for $60,000,000, senior lenders take $50,000,000, mezzanine gets the remaining $10,000,000 of its $20,000,000, and equity receives nothing.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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