Mezzanine capital is often a more expensive financing source for a company than secured debt. The higher cost of capital associated with mezzanine financing is the result of its being an unsecured, subordinated obligation in a company's capital structure. Additionally, mezzanine financing, which are usually private placements or financing companies, are often used by smaller companies and may involve greater overall levels of leverage than issues in the high-yield market; they thus involve additional risk. In compensation for the increased risk, mezzanine debt holders require a higher return for their investment than secured or more senior lenders.
For example: A construction project which is completed more than 70% and do not have sufficient funds to complete the remaining project. Private placements or financing company joint hands with developer / construction company to fill the gap and assist them to complete the project.
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