Glossary - Senior Debt
Senior debt refers to a type of debt that has the highest priority on a company's assets or earnings in the case of a default or liquidation. It is the first level of debt to be repaid, before all other unsecured or subordinate debts. Senior debt typically has lower interest rates due to its higher repayment priority and relatively lower risk compared to subordinate debts.
Also known as
- Senior loans
- Senior secured debt
- Priority debt
Use cases examples
- Loan Agreement: The credit facility outlined herein constitutes senior debt of the Borrower, having priority over all existing and future unsecured obligations in terms of repayment.
- Corporate Bond Prospectus: This series of bonds issued by the Company will be considered senior unsecured debt, enjoying priority in claim over other forms of unsecured and junior debt in the event of liquidation.
Considerations for investors
- Evaluating the risk profile of senior debt in a company's capital structure, considering its position in the event of default.
- Analyzing the company's cash flow and asset base to ensure that the senior debt can be serviced and is adequately secured.
Considerations for founders
- Understanding the implications of taking on senior debt, including the constraints it might place on future financing options due to its repayment priority.
- Assessing the covenants and conditions tied to senior debt to ensure they align with the company's operational and financial projections.
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