Mezzanine capital - What is it?
There is no strict definition of mezzanine capital. It is a flexible financing instrument sharing some of the characteristics of both debt and equity. It occupies a 'middle position' in a company's capital structure.
From a legal perspective, mezzanine capital is usually a subordinated medium-term committed loan. It ranks behind senior bank borrowings, so that it is repaid only after the bank debt has been fully discharged or when the senior lenders permit prepayment. It ranks ahead of equity investors' dividend, sale and liquidation claims.
From a risk perspective, the greater the amount of senior debt and the smaller the equity capital base, the greater will be the risk taken by the mezzanine capital provider.