The Mezzanine Gap: Filling the Space Between Senior Debt and Equity in GCC Real Assets

Between the senior debt that a lender will provide and the equity that a sponsor can raise lies a gap, the space in the capital structure that is too risky for senior debt but too valuable to fund with expensive common equity. Mezzanine capital fills this gap, providing subordinated debt or hybrid capital that increases leverage and reduces the equity required without diluting common ownership. This paper examines the mezzanine gap in Gulf Cooperation Council (GCC) real assets, where it is frequently underserved, and the role of mezzanine capital in filling it. Using an indicative dataset calibrated to 2026 conditions, it sets out the position of mezzanine in the capital stack, the forms it takes, its effect on leverage and equity returns, and a framework for when a sponsor should use it. It examines the structuring of mezzanine, including the intercreditor relationship with senior lenders, the perspective of the mezzanine provider, and the risks the instrument carries. The analysis finds that mezzanine creates value for a sponsor whenever the return on the equity it releases exceeds its cost, that it is most valuable in the mid-sized transactions where the equity gap is material but common equity is dilutive, and that the GCC mezzanine market, though underdeveloped relative to the senior and equity markets, is growing as private credit deepens. Three indicative case studies, a sensitivity analysis, an international comparison and an implementation roadmap support the analysis, which is intended for sponsors weighing whether to fill their capital gap with mezzanine.