Posts Tagged Senior Debt Lending

Senior debt lending is a type of financing in which a lender provides a loan to a borrower, with the expectation that the loan will be repaid primarily from the borrower’s core revenue streams. This type of debt is considered to be a lower-risk form of lending because it is the first to be repaid in the event of a default or bankruptcy. Senior debt is typically issued by banks, insurance companies, and other financial institutions. The terms of the loan are typically determined by the lender and the borrower, with the lender often requiring collateral or a personal guarantee to secure the loan. The interest rate on a senior debt loan is often fixed, and the loan is usually amortized over a set period of time, such as five or ten years. In the capital stack, senior debt is considered to be at the top. The capital stack refers to the various layers of funding that a company or project may have, with each layer representing a different level of risk and priority for repayment in the event of default or bankruptcy. Senior debt is considered to be the most senior of all the layers and is the first to be repaid. It is typically followed by mezzanine debt, and then equity at the bottom. One of the advantages of senior debt lending is that it is a relatively low-risk form of financing for the lender. Since the loan is repaid primarily from the borrower’s core revenue streams, the lender has a high level of confidence that the loan will be repaid. Additionally, since senior debt is the first to be repaid in the event of a default or bankruptcy, the lender’s investment is less likely to be lost. However, there are also some disadvantages to senior debt lending.