Mezzanine debt is a hybrid form of debt capital containing characteristics of both a senior loan as well as an equity investment. Like a loan, mezzanine debt principal must be repaid over a specified term. Not unlike an equity investment, mezzanine debt is usually unsecured and funds into the future growth of the company. Mezzanine debt does not conform to traditional loan parameters and is not based upon hard asset collateral. Mezzanine debt loans are based on cash flow or EBITDA of a company and are usually set at a multiple of EBITDA. For this reason, mezzanine debt is a highly flexible and customizable form of capital, often used for acquisition financing or growth capital financing. It is like a junk bond, that has a long term, little requirement for principal repayment and best of all, no personal guarantee.
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