Mezzanine Debt - Balancing your Capital Structure

Capital Structures - While there are no hard and fast rules for optimizing a company’s capital structure, companies that areahead of the curve use an efficient combination of senior debt, mezzanine debt, and equity capital to minimize their true cost of capital.

Mezzanine debt capital generally refers to that layer of financing between a company's senior debt and equity - filling the gap between the two. It is subordinate in priority of payment to seniordebt, but senior in rank to equity. Thus using mezz capital has positive side: the owners face little dilution and maintain their control of the business; the companies total cost of capital is reduced; and the mezzanine debt has a flexible payment term that is structured as “self liquidating” and is paid off over time. On the negative side, this is a debt structure that requires interest payments over time.