Mezzanine debt is a type of financing that is a hybrid of debt and equity financing. It is a subordinated debt or preferred equity instrument that represents a claim on a companys assets which is senior only to that of the common shares. Mezzanine debt is often used in leveraged buyouts to fill a financing gap between less expensive forms of financing and equity. It is frequently associated with acquisitions and buyouts, for which it may be used to prioritize new owners ahead of existing owners in case of bankruptcy. Mezzanine debt is unsecured and subordinated, meaning that in the event of default, it is only repaid after all senior obligations have been satisfied. Mezzanine debt is more expensive than secured debt or senior debt because it is a higher-risk financing source for a company. Mezzanine debt offers some of the highest returns when compared to other debt types, often generating rates between 12% and 20% per year. Mezzanine financing is a way for companies to raise funds for specific projects or to aid with an acquisition through a hybrid of debt and equity financing. Companies use mezzanine financing to increase their working capital, fund an acquisition, or finance the transfer of a business to family members or the management team. A key benefit of mezzanine financing is that the loan is usually treated as equity on the balance sheet, so it does not count as debt in the calculation of the company’s debt-to-equity ratio. To receive mezzanine financing, companies must typically have an established reputation, solid product offering, history of profitability, and realistic growth plans.