Definition of Senior debt:
Senior debt is a company’s first tier of liabilities, typically secured by a lien against some type of collateral. Senior debt is secured by a business for a set interest rate and time period. The company provides regular principal and interest payments to lenders based on a preset schedule. This makes the debt less risky, but also commands a lower return for lenders. Senior debt is generally funded by banks. The banks take the lower risk senior status in the repayment order because they can generally afford to accept a lower rate given their low-cost source of funding from deposit and savings accounts. In addition, regulators advocate for banks to maintain a lower risk loan portfolio.
Payment of which takes priority over other (junior) debts and which must be paid first from proceeds of a liquidation sale in case of a default.
Senior debt is borrowed money that a company must repay first if it goes out of business. Each type of financing has a different priority level in being repaid if the company goes out of business. If a company goes bankrupt, the issuers of senior debt, which are often bondholders or banks that have issued revolving credit lines, are most likely to be repaid, followed by junior debt holders, preferred stock holders and common stock holders, possibly by selling collateral held for debt repayment.
How to use Senior debt in a sentence?
- Senior debt is most often secured by collateral, also making it relatively less risky.
- Senior debt has the highest priority and therefore the lowest risk. Thus, this type of debt typically carries or offers lower interest rates.
- Senior debt is debt and obligations which are prioritized for repayment in the case of bankruptcy.
- Subordinated debt carries higher interest rates given its lower priority during payback.
Meaning of Senior debt & Senior debt Definition