Mezzanine Debt

A source of funding that uses preferred equity, convertible bonds or subordinated debt. Mezzanine debt ranks higher than common equity and below senior debt in the repayment priority.

Mezzanine debt is a hybrid of debt and equity where repayment priority is lower than senior debt but positioned above pure equity investors. Given its hybrid nature, it can lean either more to debt or equity. In equity-like cases, there may be more opportunity for upside via warrants. Considered unsecured subordinated debt.

One use case for mezzanine debt includes special/distressed situations where investors aim to convert their convertible bonds or subordinated debt into equity control during a restructuring process.