Financing Structures & Capital Sources
Mezzanine Finance in Shipping
Summary
Mezzanine finance is subordinated capital between senior debt and ordinary equity, often remunerated through higher coupons or participation rights.
Why this matters in ship finance
It can bridge acquisition funding gaps but adds structural complexity and can weaken resilience if payment demands are excessive.
The concept
Subordination may arise from contractual ranking, security priority, payment blockage, equity conversion or warrants; terms vary by jurisdiction and intercreditor agreement.
How it is used in practice
Model cash interest, deferred or payment-in-kind amounts, maturity, conversion and senior-loan covenant restrictions.
Practical issues
The label mezzanine does not guarantee equity treatment for accounting or regulatory purposes. Intercreditor consents are critical.
How ShipFinance.ai uses this concept
Show a sources-and-uses capital stack with cash-pay and exit-return sensitivities.
Key takeaways
- Subordination is defined by enforceable terms.
- Higher cost reflects greater loss absorption.
- Payment-in-kind interest still increases claims.