Question

List the similarities and differences between Preferred Equity and Mezzanine Debt. Take one of those similarities/differences and explain it in detail.

Answer 1

Similarity between preferred equity and mezzanine debt are as follows-

1. They are both placed between senior debt and common equity and both serve similar kind of purpose for the management as well as the company.

2.Both helps in providing the borrower with higher leverage.

3. Both have a lesser cost than the common equity so highly economical.

Differences between preferred equity and mezzanine debt are as follows-

1. Mezzanine debt is a form of debt while preferred equity is a form of equity.

2. Mezzanine debt is secured by lien on-property while preferred equity are not secured through lien.

To explain one similarities it can be said mezzanine debt as well as preferred equity are highly economical methods as they are cheaper than the common equity and they also provide with the advantage of leverage.