Investors are snapping up loans to speculative-grade companies that get paid after senior creditors, with projected returns of about 20% this year.

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Mezzanine loans give lenders a stake in companies because they blend equity with debt and investors can profit in an initial public offering when borrowings are refinanced at face value. Companies raised $58bn through IPOs this year, compared with $4.7bn in the same period last year, as buyout firms exited their investments.