A company may wish to raise additional debt but may already have a substantial amount of secured debt (senior debt) on its balance sheet. In such a situation, a company can raise Mezzanine Debt (or Mezzanine Finance), that would rank behind the senior debt. This is an alternative to raising Equity Capital without diluting existing shareholders.
Because of the additional risk borne by the Mezzanine Finance providers, they will be offered a higher return than the interest earned by the senior debt providers. Mezzanine Debt is also commonly used in Leveraged Buy-Out transactions as well as financing growth for companies.