Senior Debt
Key Highlights
-
Senior debt is a type of loan that gets paid back first if a company goes bankrupt or shuts down.
-
Common types include bank loans, credit lines, or certain bonds.
What is Senior Debt?
Senior debt is a type of loan that gets paid back first if a company goes bankrupt or shuts down. It’s like being at the front of the line when it’s time to divide up the company’s assets, ahead of other creditors, like those with junior debt or shareholders.
Key Points
-
Top Priority: Senior debt holders get their money back before anyone else if the company can’t pay its debts.
-
Lower Risk: Since it’s safer for lenders, senior debt is less risky than other types of debt or investments.
-
Secured or Not: It can be backed by collateral (like property or equipment) or not, but it always ranks above other debts.
-
Examples: Common types include bank loans, credit lines, or certain bonds (like senior notes).
Senior Debt Vs Subordinated (Junior) Debt
| Feature | Senior Debt | Subordinated (Junior) Debt |
|---|---|---|
| Priority in Repayment | First | After senior debt |
| Risk Level | Lower | Higher |
| Interest Rates | Lower | Higher |
| Typical Holders | Banks, institutional lenders | Bondholders, mezzanine lenders |
| Collateral | May be secured or unsecured | Usually unsecured |