Capital Stack

The capital stack is the full set of capital sources funding a deal, arranged by priority of repayment. From most senior (paid first, lowest risk and return) to most junior (paid last, highest risk and upside): senior debt → mezzanine debt → preferred equity → common equity.

How it's used: structuring the stack is how sponsors balance leverage, cost of capital, and control. Senior debt is set by loan-to-value; layers above it (mezz, pref) fill the gap between the loan and the common equity the sponsor and LPs bring.

Why it matters: your position in the stack defines your risk and return. Senior lenders get paid first and accept the lowest yield; common equity is last in line at a sale or in a workout but captures all the upside above the other layers. In distress, the stack determines who gets wiped out and who recovers — junior positions can go to zero while the senior loan is made whole. The preferred return and promote govern how the equity layers split profits once the debt is served.

Senior debt also varies by recourse vs. non-recourse structure, which changes who's on the hook if the deal sours. UpsideIQ models the senior loan and the LP/GP equity split on every deal.