Here are the next two fables in our continuing special series on myths of private credit:

Myth #5: “No one uses mezzanine debt anymore.”

As we detailed over four years ago (link), private sub debt regularly gets kicked around at conferences for being “dead.” This has particularly been the case since the advent of the unitranche, which has certainly disintermediated a share of senior/junior two-tranche financings.

Yet mezz (or whatever you want to call it – sub or junior debt, second lien, PIK notes) has been a feature of the private capital landscape for decades and remains as active as ever. Why? In part because of its use as a private equity substitute. Being so-called “patient capital,” mezz is often deployed in the lower end of the middle market below senior debt tranches with more cyclical, first-time, or situational borrowers.