Mezzanine
Short definition
Mezzanine is the hybrid layer between senior debt and equity. It is junior, often with PIK or warrants; the cash coupon looks dearer than senior and more “disciplined” than equity.
Detailed explanation
It sits second on seniority and collateral; LGD is high. Covenants sit inside the senior pack or in a separate holdco.
Whether WACC counts it as debt or equity depends on cash coupon and shield. Rating agencies may treat a slice as equity-like.
Why it matters for the CFO
In an LBO or a growth gap, mezzanine fills the hole without an equity issue — at the price of PIK and exit dilution (warrants).
How to read it
All-in is cash coupon + PIK + warrant + fees. “Cheaper than equity” is wrong if you only compare the cash coupon.
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Definitions are educational. They are not investment, credit or tax advice.