Senior-secured

November 3, 2020 • 2 min read

Senior-secured refers to a portion of the debt that is paid off first. Senior-secured debt is usually offered by a corporation, LLC, or trust fund and receives priority in securing the loan with specified collateral.

What this entails is that a senior-secured loan is issued by a company itself, rather than the lender or financial institution. It’s becoming more prevalent in modern business as it offers companies the ability to restructure and recapitalize their debt and equity portfolios.

Senior-Secured Debt

In the event that a company files for bankruptcy, or perhaps goes out of business – senior-secured debt is a portion of the money borrowed which needs to be paid off first. Once these debts have been paid off first, additional payouts to shareholders, investors, and bondholders will be paid out.

Senior-Secured Loans

These loans are secured using company assets and are issued by non-investment-backed businesses or institutions. Companies and individuals make use of senior-secured loans or SSL as a way to diversify their income strategy.

When a company undergoes an SSL, they’re usually looking to withhold current capital, and use the additional loan to hedge rising interest rates. There are multiple reasons why a company will undergo a senior-secured loan, most notable to assist with operational costs.

Sources of Senior-Secured Debt

Selected Financial Institutions: Smaller businesses and firms have the ability to undergo secured debts from selected financial institutions.
Public Bond Market: Larger companies and corporations who have publicly traded stock can issue senior debt through the bond market.
Non-Investment Private Firms: Companies can decide to sell off portions of the company to private investors to help secure a loan. This option makes it easier, as the company can select private investors who they would like to sell to, and create a personalized payment period.

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