Mezzanine Capital Law and Legal Definition
Mezzanine capital refers to a subordinated debt medium term committed loan. It is a preferred equity instrument that represents a claim on a company's assets which is senior only to that of the common shares. 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. Mezzanine capital is often a more expensive financing source for a company than secured debt or senior debt.
Mezzanine capital is used in leveraged buyouts in conjunction with other securities to fund the purchase price of the company being acquired. In real estate finance, mezzanine loans are often used by developers to secure supplementary financing for development projects typically in cases where the primary mortgage or construction loan equity requirements are larger than 10%.