Mezzanine Debt

A general term telling a situation in which a hybrid debt subject is subordinated to another debt issue from the same issuer. Mezzanine debt has entrenched equity instruments (usually warrants) involved, which upturn the value of the subordinated debt, and permits for greater flexibility when dealing with bond owners. Mezzanine debt is often related with achievements and coups where it may be used to order new owners forward of existing owners in case of bankruptcy. Some examples of entrenched options comprise stock call choices, rights and warrants. In practice, mezzanine debt acts more like stock then debt because the embedded options make the change of the debt into stock very good-looking.

Under U.S. usually accepted accounting principles, how a hybrid security is classified on the balance sheet depends on how the embedded option is influenced by the debt share. If the exercising of the embedded option is prejudiced by the edifice of the debt quota in any way, the two parts of the hybrid (debt and the embedded equity option) must be confidential in the accountability and stockholder’s justness sections of the balance page.