What is considered senior debt? Senior debt is debt and obligations which are prioritized for repayment in the case of bankruptcy. Senior debt has the highest priority and therefore the lowest risk. Thus, this type of debt typically carries or offers lower interest rates.
What is the difference between senior and junior debt?
Junior debt refers to bonds or other debts that have been issued with lower priority than senior debt. Unlike senior debt, junior debt is not typically backed by any type of collateral. As a result of these attributes, junior debt tends to be riskier and carry higher interest rates than senior debt.
What is senior preferred debt?
Preferred debt is a financial obligation that is considered more important than–or make take priority over–other types of debt. For example, the first–or senior–mortgage would be considered preferred debt (when comparing the first and second mortgage). Interest on preferred debt is typically free from any taxes.
What is senior debt in real estate?
Senior debt is borrowed money with precedence over any other debts owed by an issuer. It takes priority for repayment if the company goes out of business or needs to sell the property. If the issuer becomes insolvent, it has to pay back this debt before other creditors receive any payment.
Is a mortgage a senior debt?
The first mortgage is a loan that has priority over other claims or liens while other secured loans are considered subordinate. Other liens are called junior claims. The first mortgage has priority except for statutory liabilities such as taxes.
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Is senior debt long term?
Senior term debt is a loan with a priority repayment status in case of bankruptcy, and typically carries lower interest rates and lower risk. The term can be for several months or years, and the debt may carry a fixed or variable interest rate.
Is senior unsecured debt subordinated?
Senior Unsecured Debt means indebtedness for borrowed money that is not subordinated to any other indebtedness for borrowed money and is not secured or supported by a guarantee, letter of credit or other form of credit enhancement.
How is senior debt calculated?
There are several measures to typically estimate a company's maximum subordinated debt: Total debt to EBITDA ratio of 5-6 times. As mentioned above, senior debt typically accounts for 2-3 times debt to EBITDA, hence the remaining for subordinated debt. EBITDA to cash interest of about 2 times.
Is senior debt always secured?
Senior debt is often, but not always, secured debt. Because this kind of debt is risky for lenders, they can charge higher interest rates than secured debt lenders. Junior debt is often unsecured; however, lenders may take second liens on your fixed assets in order to extend you junior (or subordinated) secured debt.
What is the difference between senior and mezzanine debt?
Mezzanine debt is a hybrid form of capital that is part loan and part investment. Senior debt is a loan from a bank. Banks lend off of asset values so most senior loans are collateralized with assets. The bank loan is always secured and in the first position.
Why do companies issue senior notes?
Why Do Companies Offer Convertible Senior Notes? Convertible notes and convertible senior notes are a popular way for companies to borrow money with lower interest obligations than other kinds of debt. When note-holders redeem their notes for company shares, they reduce the company's debt obligations.
Is revolving credit facility senior debt?
Revolving credit facility (revolver), which can be paid down and reborrowed as needed. - Term debt (senior and subordinated) with floating rates. Payments-in-kind (PIK) toggle allows no interest payment and increase in principal.
Is revolver a subordinated debt?
A revolver is a form of senior bank debt that acts like a credit card for companies and is generally used to help fund a company's working capital needs. The interest rate charged on the revolver balance is usually LIBOR plus a premium that depends on the credit characteristics of the borrowing company.
What are senior bonds and securities?
A senior bond is a type of debt security that has a superior claim on the assets and income of the entity that issues the bond. Bonds that have secondary claim on the issuer's assets are classed as junior bonds. Those with the strongest claim on those same assets are referred to as being senior bond issues.
What is senior leverage ratio?
Senior Leverage Ratio means the ratio as of the last day of any Fiscal Quarter of (i) Consolidated Senior Debt as of such day to (ii) Consolidated Adjusted EBITDA for the four-Fiscal Quarter period ending on such date.
What are US senior loans?
A refresher on US senior loans
Simply put, senior loans are floating-rate notes issued by companies with high financial leverage. They are also referred to as leveraged or syndicated loans. Loan coupons adjust periodically based on changes in short-term interest rates.
Are bank loans senior to bonds?
Senior loans are issued by banks to speculative-grade companies and then sold to investors. These floating-rate loans generally offer higher yields than investment-grade bonds but lower yields than junk-rated bonds because bank loans are more “senior” in the capital structure. (Bond prices fall when yields rise.)
Are loans senior to bonds?
Because of their inherent risk and volatility, senior bank loans typically pay the lender a higher yield than investment-grade corporate bonds.
Are senior notes good or bad?
Senior notes are bonds that must be repaid before most other debts in the event that the issuer declares bankruptcy. That makes senior notes more secure than other bonds. That greater level of safety means investors earn slightly lower interest rates.
Why do companies issue subordinated debt?
Banks issue subordinated debt for various reasons, including shoring up capital, funding investments in technology, acquisitions or other opportunities, and replacing higher-cost capital. In the current low interest rate environment, subordinated debt can be relatively inexpensive capital.
What are the types of debt?
Types of Debt. There are four main categories of debt. Most debt can be classified as either secured debt, unsecured debt, revolving debt, or a mortgage.
What does senior unsecured notes mean?
Senior Unsecured Notes means Debt in the form of unsecured senior or senior subordinated notes issued by the Parent Guarantor or the Borrower, including exchange notes issued in exchange therefor pursuant to any registration rights agreement (it being agreed that any such exchange or offer to exchange shall not
Are bonds subordinated debt?
What Is Subordinated Debt? Subordinated debt (also known as a subordinated debenture) is an unsecured loan or bond that ranks below other, more senior loans or securities with respect to claims on assets or earnings. Subordinated debentures are thus also known as junior securities.
Are senior notes secured or unsecured?
Senior notes are typically unsecured debt; they aren't secured by collateral. Because senior notes have less risk than junior bonds, they typically pay lower interest rates, but that doesn't mean they're risk-free.
Is bank debt a senior debt?
Historically companies used senior debt (held by the banks), followed by mezzanine debt and then junior debt (usually held by bondholders and note-holders), often ranking above unsecured creditors and shareholders/equity holders.
What is senior debt and subordinated debt?
Senior debt has the highest priority and, therefore, the lowest risk. Thus, this type of debt typically carries or offers lower interest rates. Meanwhile, subordinated debt carries higher interest rates given its lower priority during payback. Subordinated debt is any debt that falls under, or behind, senior debt.
What is Bridge capital?
Bridge capital is temporary funding that helps a business cover its costs until it can get permanent capital from equity investors or debt lenders. The repayment terms for bridge capital vary, but usually payment is made in full when the company receives the new capital or a longer-term loan.
What happens when a company redeems senior notes?
Upon redeeming the bond, the issuer must return the investor's principal payment. When rates fall, issuers of callable bonds have two choices: They can keep the bonds active and pay higher-than-market interest rates to investors, or they can redeem the bonds and cease making those interest payments.
What is the difference between a revolving loan and an overdraft?
Essentially, an overdraft is a line of credit arranged with your bank to a set amount. It allows you to withdraw money from your account even when the balance is zero. Revolving credit, on the other hand, is typically offered by a lender other than your bank.
Is a revolver long term debt?
A firm's revolver is a line of short-term credit which the firm can access when it needs short-term funding to pay for operating expenses or one-time transactions. The revolver is always used for short-term financing, and is almost always paid off very quickly.
What is overdraft facility?
An overdraft facility in a Current Account allows you to withdraw from even though the balance is zero. It is a form of extension of a stipulated limit offered by banks; the said amount of funds is known as overdrawn.