Mezzanine financing is a hybrid form of financing that combines elements of equity and debt. It is often used by companies to bridge the funding gap between traditional debt (e.g., bank loans) and equity.

Characteristics:

• Subordination: Mezzanine capital ranks below traditional bank loans, meaning that in the event of insolvency, repayment occurs only after the claims of senior creditors are settled.
• Project Dependency: Mezzanine financing relies on project-specific repayment, which entails higher risks for investors. Repayment primarily depends on the success of the completed project, making traditional creditworthiness assessments less central.

Applications:

• Financing acquisitions or expansions.
• Bridging financing gaps in real estate projects.
• Improving the equity ratio to secure further debt financing.

Mezzanine financing is an attractive solution for companies seeking to finance their growth without diluting their equity holders or providing additional collateral.