Compare mezzanine and senior debt structures. Understand cost, flexibility, and trade-offs.
| Metric | Senior | Mezzanine |
|---|
Mezzanine costs more but provides leverage without equity dilution. Bridges the gap between senior capacity and total financing needs.
Mezzanine debt occupies the space between senior secured debt and equity in the capital structure. It costs more than senior debt because the lender takes on greater risk, but it is cheaper than equity because the borrower retains full ownership.
The primary advantage of mezzanine is that it allows companies to increase leverage beyond what senior lenders will provide, without diluting equity holders. This makes it popular in leveraged buyouts, growth financing, and acquisition financing.
The trade-off is cost: mezzanine rates typically run 10-15% annually (compared to 4-7% for senior), and may include equity warrants or PIK features. This tool helps you quantify the blended cost equation.
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