Mezzanine Financing

A type of debt financing that gives the lender the right to convert to equity or ownership if the debt is not repaid in time and in full.

It is usually used to finance business expansion but has also been popular as a form of financing for limited partnerships (“LPs”) and limited liability partnerships (“LLPs”). Though often subordinated to other forms of secured debt or debt provided by banks and venture capitalists, it ranks before other forms of unsecured debt. This may have distribution repercussions in LPs and LLPs where there is, in principle, a system of equal distribution but mezzanine financing has been provided by a partner.