Mezzanine Debt

Categories: Bonds

See: Mezzanine Financing. Mezz debt is just the loan-y flavor of Mezz Equity funding.

Mezz debt usually happens when a company is juuuusssst kissing in a G-Rated way, at least the notion of profitability. Banks then lend dough to them at relatively high interest rates, and usually a deal comes with some upside equity participation, should the debt convert to equity (i.e. all goes more or less according to plan), and the company goes public at a big valuation step up. The cost of debt might be high...8%? 10%? 12.5%? But whatever it is, it's cheaper than selling equity, which would likely be a vastly higher percentage rate or overall cost. When companies sell pieces of themselves to investors, those pieces are pieces forever, whereas debt gets paid off and goes away, like the memory of a boring kiss.

See: Warrant Coverage.

Find other enlightening terms in Shmoop Finance Genius Bar(f)