Moneyzine
Contents
/Personal Finance/Senior Loan (Senior Debt)

Senior Loan (Senior Debt)

Moneyzine Editor
Author: 
Moneyzine Editor
1 mins
September 25th, 2023
Advertiser Disclosure

Definition

The term senior loan refers to debt that takes priority over junior or subordinate debt. Holders of senior loans are the first to be repaid in the event a company was to fail and its assets liquidated.

Explanation

Also referred to as senior debt, senior loans are debt instruments that take priority over subordinate (junior) debt from the same issuer. Senior debt takes priority over all other forms of capitalization in the event of bankruptcy, meaning it must be repaid before all other creditors can receive payment. Senior debt also has priority with respect to payment and repayment. For example, holders of these securities are paid before the holders of common stock would receive a dividend payment.

While most senior loans are secured with collateral, it can also be unsecured. This complicates the repayment order in the event of liquidation. For example, while senior secured debt takes priority over subordinate secured debt, if the collateral securing the loan is sufficient to repay holders of secured subordinate debt, they will be repaid before holders of unsecured senior debt. This relationship is shown in the accompanying illustration.

As the risk of non-payment increases, so does the rate of interest on the security. For example, investors in unsecured subordinate debt would demand a higher rate of interest from the borrower than holders of secured senior debt.

Related Terms

Related Content

  • What Can Help You Meet Your Budget While Shopping for Important Items?
    Budgeting while ensuring you don't compromise on quality can seem daunting. Whether filling your pantry, updating your wardrobe, or keeping up with the latest tech, smart shopping strategies are crucial for keeping your finances in check.
    April 2nd, 2024
  • How to Make a Million Dollars in 10 Years
    Truthfully, this title should actually be “How to Make a Million Dollars in 10 Years Without Going Into Debt", but that is just getting a little too winded for my liking. It’s true though!
    November 5th, 2024
  • How to Apply Maslow’s Hierarchy to Your Money This Year
    You might vaguely remember your psychology teacher talking about Maslow. He pointed at a picture of a triangle as you nodded off in the back of the school room.
    November 5th, 2024
  • How to Tackle Multiple Savings Goals
    When there’s only so much money to go around, there are often multiple savings goals competing for your money. Think of the young professional who’d like to get a more reliable car, buy a house, and save for retirement. Or consider the young family that’s saving for college, retirement, and a bigger house.
    March 22nd, 2024
  • The Countdown to Early Retirement: 10 Expenses to Eliminate
    Dreaming of waving goodbye to the daily grind five years ahead of schedule? The road to early retirement is paved with more than good intentions; it requires a meticulously crafted strategy with surprising twists. It's not solely about what you should be doing—like diligently saving a portion of your income or investing wisely—but also about what you need to stop doing.
    March 22nd, 2024

Contributors

Moneyzine Editor
The Moneyzine editorial team consists of writers and content specialists with diverse backgrounds.
Moneyzine 2024. All Rights Reserved.