Loosely applied to a variety of debt other than senior secured debt. Traditionally mezzanine debt is unsecured debt subordinated by its terms to the payment of senior debt. Other types of debt or quasi-debt sometimes described as “mezzanine” include second lien lending and “preferred equity” investments. In the real estate arena a mezzanine debt has come to mean debt secured by ownership interests in the primary borrower (the owner of the property and borrower under the senior loan) rather than the real estate itself.
Mezzanine lenders are often forced in an intercreditor agreement with the senior lender to waive numerous bankruptcy rights and can end up with fewer rights than other unsecured creditors.
See also A-B Note Structure, Intercreditor Agreement, Second Lien Lending, Subordination, Subordination Agreement.