Senior Debt and Mezzanine Financing

Jonathan Aghravi, senior director of Eastern Consolidated, uses a variety of debt vehicles to provide financing for metropolitan commercial property. In August of 2014, Jonathan Aghravi secured a $65 million loan using senior and mezzanine debt, which enabled the purchase of 6100 Wilshire Boulevard in Los Angeles.

Senior and mezzanine financing represent the top two tiers of financial liability for a borrower. This means that a company with multiple levels of credit will prioritize the paying off of senior debt. Such prioritization stems from the protection that senior debt receives in the form of collateral, as well as in the surety that the loan would be the first paid should the company become bankrupt. Senior debt includes a specified repayment schedule that is included in the contract, which further reduces the risk to the lender.

Mezzanine financing also features a specified payback date but is not secured. It typically costs the borrower more than the same financing in senior debt form; most mezzanine products give more than 20 percent in returns to the lender. This serves as compensation for much of the risk that the lender takes in offering a product that carries a very low repayment priority. These terms frequently represent a vote of confidence in the borrower and may come with an offer of strategic assistance and support in the long term.