Which type of debt ranks the lowest in the capital stack?

Mezzanine unsecured debt ranks the lowest in the capital stack due to its position in the hierarchy of claims on a company's assets and income. This type of debt is typically unsecured, meaning it does not have specific collateral backing it, which places it behind secured debt and even subordinated debt in terms of claim priority upon liquidation or bankruptcy.

In the event of a financial distress or liquidation, creditors with higher-ranking claims, such as secured debt holders, are paid first, followed by subordinated debt holders. Since mezzanine debt is unsecured, it is more vulnerable to losses and typically bears a higher interest rate to compensate investors for the increased risk. Additionally, while mezzanine debt may often include equity-like features such as warrants or conversion options, it still remains lower in the capital structure compared to equity financing, which represents ownership interests and is subordinate to all forms of debt.

Thus, mezzanine unsecured debt sits at the bottom of the capital stack, being one of the last types of financing to be repaid in a priority sequence.