Look for senior debt, mezzanine debt, preferred equity, common equity, guarantees, intercreditor terms, and investor class rights.
Plain-English term
Capital stack
The layers of debt and equity in a deal.
Definition that survives review
The capital stack shows who provides the money for a deal, who has priority, and where each party sits in the risk order. In a real review, translate the term into the cash flow, priority, deadline, tax treatment, status test, or control right it changes.
Use it to understand payment priority and who absorbs losses first. If you cannot point to the exact document or calculation behind it, you have recognized the vocabulary but not yet understood the deal.
Why it matters
The stack tells you who gets protected first and who absorbs pain first. That is not trivia; that is the game. This is why the term is not finished until you know who calculated it, what period it covers, and what happens if the friendlier definition is wrong.
A useful glossary entry should show where the word appears, what input changes it, and which connected term changes the answer next: Syndication, Waterfall, Preferred return.
How to use it in diligence
Senior debt gets paid before mezzanine debt, preferred equity, common equity, and sponsor promote.
If the deal has a senior loan, pref equity, and common equity, common equity usually absorbs pain before the lender does.
People say they are investing in the property, but they forget they are also choosing a seat in the stack.
Proof checklist
- The source period, calculation basis, and owner of the number are named.
- The term reconciles to the PPM, operating agreement, lender documents, tax schedule, underwriting model, or verification record.
- The downside version is visible before the optimistic version gets trusted.
Example, trap, question
If the deal has a senior loan, pref equity, and common equity, common equity usually absorbs pain before the lender does.
People say they are investing in the property, but they forget they are also choosing a seat in the stack.
- where you sit, what sits above you, and what has to go wrong before your position gets hurt.
- What source document, schedule, or third-party evidence proves this term in this specific deal?
- Which connected term changes the answer next: Syndication, Waterfall, Preferred return?
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