What Is Mezzanine Capital?

Mezzanine Capital is a capital form with returns and risks between corporate debt capital and equity capital. It is also a proper term that appears in the financing process of mezzanine financing. It is essentially a long-term unsecured debt risk capital .

Mezzanine capital

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Mezzanine Capital is a capital form with returns and risks between corporate debt capital and equity capital. It is also a proper term that appears in the financing process of mezzanine financing. It is essentially a long-term unsecured debt risk capital .
Chinese name
Mezzanine capital
Nature
capital
Attributes
Interlayer
Mezzanine financing
A proper term that appears in the financing process
What is mezzanine capital
It is a proper name that appears in the financing process of mezzanine financing. It is aimed at the provider of the funds, that is, the investor.
When a company undergoes bankruptcy liquidation, the preferred debt provider is first paid off, followed by the mezzanine capital provider, and finally the company's shareholders. Therefore, for investors, the risk of mezzanine capital lies between preferred debt and equity.
Application of mezzanine capital
Mezzanine capital is often used by companies that accept follow-on venture capital, or when a bank's senior loan at the time of a leveraged buyout does not provide all the funds needed for the acquisition. Therefore, mezzanine capital issues subordinated loans to the company, which is below the bank loan in the capital structure order, but above the equity from the LBO fund. Mezzanine capital also provides significant growth capital. When a growing business can't get all the funding it needs from a bank, it often turns to mezzanine lenders for help. As a result, mezzanine lenders demand much higher returns than banks, but much lower than venture capital firms and LBO funds.
Mezzanine debt, like senior debt, requires the financing party to repay the principal and interest on schedule, but usually requires a higher interest rate level than senior debt. Its income usually includes two parts: cash income and equity income. A typical mezzanine debt provider can choose to convert a portion of the financing amount into the equity of the financing party, such as Option, Warrant, Convertibility, or Equity Participation Rights, etc. Power, thereby having the opportunity to profit from capital appreciation.
Common mezzanine capital forms include Subordinated Debt with Warrants, Convertible Debt, and Redeemable Preferred Equity. Therefore, the mezzanine capital's return is also between the priority debt and equity.

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