Which term describes a capital structure position that sits between debt and equity?

• A. Senior Secured Debt
• B. High Yield Bonds
• C. Mezzanine
• D. Common Stock

Answer: (C)

Mezzanine financing describes capital that sits between debt and equity in a company's capital stack. It is typically subordinated to senior debt, meaning it gets repaid after the main debt if a company defaults, but it has priority over common equity. Lenders often get equity-like upside through warrants or conversion rights, so the instrument blends debt features with potential equity participation. Because it carries higher risk than senior debt, it commands higher returns, but it still sits below equity in the claim order, making it a middle layer in the capital structure. This positioning helps companies raise additional funds without diluting equity as much as issuing common stock, while lenders receive protection and upside relative to pure equity. Senior secured debt remains at the top of the stack with the strongest claims and collateral; high yield bonds are still debt instruments, just riskier; and common stock is the equity layer, with residual claims and upside.