Loan type Mezzanine & Structured Credit

Mezzanine, preferred equity or stretch senior?

All three fill the same gap in the capital stack, the layers of funding behind a deal ranked by who is repaid first. What differs is where they sit and how they're secured.

Mezzanine debt is a loan that ranks behind the senior lender, usually secured by a second mortgage and governed by a priority or intercreditor deed that sets out what each lender can do if the deal goes wrong.

Preferred equity isn't a loan at all. The investor takes an equity interest in the project or company, with a return paid ahead of the ordinary equity. Because it sits in the ownership structure rather than on the title, it can work where a senior lender won't allow a second mortgage.

Stretch senior replaces senior and mezzanine with one larger first-ranking loan. One lender, one set of documents, and no negotiation between lenders.

The name is borrowed from architecture. A mezzanine is the intermediate floor between two main storeys, from the Italian mezzano, meaning middle. It's an exact description. Below it is the senior floor, where the lender is repaid first and priced accordingly. Above it is the equity floor, where the owner takes the last dollar of risk and the first dollar of upside. Seen that way, the cost makes sense: mezzanine is expensive debt, but it's inexpensive equity.

When it helps

• Reducing the equity required. A developer takes on a project with less of their own capital committed.
• Releasing equity for the next deal. Capital tied up in one project is freed to start another.
• Closing a funding shortfall. The senior loan comes in below what the deal needs, and there's a gap to fill.
• Acquisitions and growth. A business funds an acquisition without giving away ordinary equity.
• Recapitalising a project. A partner wants out or costs have moved, and the capital structure needs resetting.

How it works

1. Tell us the scenario. The project or business, the senior debt, the capital stack, how much you need and when.
2. We match it to lenders. In the first conversation we'll tell you whether it fits a lender in our group or network, and what we need to take it further.
3. The lender assesses it. They look at the project or business, the senior terms, the sponsor and the exit, and make the credit decision.
4. Funds, then exit. The facility is repaid from sales, a refinance or the business itself, alongside or after the senior loan, as agreed at the start.

What lenders look at

A mezzanine lender's first question isn't what the asset is worth. It's how much of that value is already spoken for. Its position depends entirely on what sits ahead of it, so it looks closely at the senior loan: its size, its terms and what it allows.

Then the sponsor. Experience, track record and how much of their own money stays in the deal all matter, because a developer with real equity at risk behaves differently from one without it. For projects, lenders look at the feasibility, pre-sales, the builder and the contingency. For businesses, at earnings and how reliably they service the whole debt stack.

And the exit. Mezzanine is usually the last lender repaid, so a credible, supported plan for how everyone gets repaid matters more here than almost anywhere else.

What it costs

Mezzanine and structured credit are priced above senior debt, and the reason is where they rank. If a project runs over time or budget, the senior lender is repaid first and the mezzanine lender absorbs the shortfall ahead of it. Pricing reflects that position, often combining interest with fees, and preferred equity may take a share of the profit. Stretch senior generally sits between the two.

The fair comparison isn't with the senior loan. It's with the equity it replaces.

Getting indicative terms costs you nothing, and any fees are agreed with you up front, before any work starts.

This page is general information only. It isn't financial, credit or legal advice and doesn't take into account your particular circumstances. Lending decisions are made by the lender.