Mezzanine finance
A second tranche behind your senior lender that lifts leverage and frees up equity.
What mezzanine finance is
Mezzanine finance is a second tranche of debt that sits behind the senior lender and in front of the developer's equity. It bridges the gap between the senior facility and the total funding a scheme needs, lifting combined leverage to around 85 to 90 percent of cost, so a developer commits less of their own capital and can run more schemes at once.
Because the mezzanine lender ranks behind the senior charge, it carries more risk and prices accordingly. It is secured by a second charge, with an intercreditor agreement governing how the two funders rank, and is repaid on exit after the senior loan from sale or refinance proceeds.
- Sits behind senior debt, ahead of equity
- Lifts combined leverage to around 85 to 90% of cost
- Reduces the developer's day-one equity
- Second charge, governed by an intercreditor deed
Indicative terms
- Loan size£250k to £20m+
- Combined LTCUp to around 85 to 90%
- TermAligned to the senior facility
- RateHigher than senior, reflecting second-charge risk
- SecuritySecond charge plus intercreditor deed
Indicative only. Terms vary by lender, scheme and borrower and are not an offer of finance.
Who it suits
- Developers stretching equity across multiple schemes
- Strong schemes where the margin supports higher leverage
- Borrowers topping up a conservative senior facility
Discuss mezzanine finance
A view on fundability within one working day.
How a second tranche stacks behind senior debt
Gap sizing
We size the gap between the senior facility and the scheme's total funding need, and the equity you want to retain.
Mezzanine terms
We place a second-charge tranche to take combined leverage to around 85 to 90 percent of cost, priced for its junior position.
Intercreditor agreement
An intercreditor deed sets out how senior and mezzanine rank on drawdown, default and repayment.
Exit after senior
On sale or refinance the senior loan is repaid first, then the mezzanine tranche, then the developer's profit and returned equity.
Schemes that support a mezzanine layer
Mezzanine suits strong schemes with enough margin to carry a second, more expensive tranche, and developers stretching equity across several projects. Lenders look hardest at the margin over cost, because the mezzanine sits closest to the risk: a thin scheme cannot support junior debt, while a well-margined one can carry it comfortably.
How much extra leverage mezzanine adds
Mezzanine typically lifts combined leverage from a senior cap of around 65 to 70 percent of cost up to about 85 to 90 percent of cost, depending on the scheme's margin and the lenders involved. That can cut the developer's day-one equity by more than half on a well-margined scheme.
Why mezzanine is priced higher
The mezzanine lender ranks behind the senior charge, so in a downside it is repaid second. That extra risk is priced into a higher rate and often a profit share or exit fee. We weigh the cost of mezzanine against the value of the equity it frees and the return on deploying that equity elsewhere.
Mezzanine versus stretch senior versus JV equity
Mezzanine and stretch senior reach similar leverage; mezzanine keeps a cheaper senior loan in place with a junior tranche on top, while stretch senior delivers it from one lender. JV equity goes further still, funding the equity itself in return for a profit share rather than interest. We model all three against the scheme's margin and your equity position.
Mezzanine finance: common questions
How much can mezzanine add to my leverage?
Mezzanine typically lifts combined leverage from a senior cap of around 65 to 70 percent of cost up to about 85 to 90 percent of cost, depending on the scheme's margin and the lenders involved.
Why is mezzanine more expensive?
The mezzanine lender ranks behind the senior charge, so in a downside it is repaid second. That extra risk is priced into a higher rate and often a profit share or exit fee.
What is an intercreditor agreement?
It is the deed between the senior and mezzanine lenders that sets out how they rank on drawdown, default and repayment. It is standard on any scheme with both a senior and a mezzanine tranche.
Mezzanine or JV equity?
Mezzanine is debt repaid with interest and keeps more profit with the developer. JV equity funds the gap in return for a profit share and suits developers who want to commit less capital and share the risk. We model both.
Discuss mezzanine finance
Send us your scheme and we will come back with a view on fundability and likely terms within one working day.