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Seniority

November 2, 2021 • 2 min read

Companies structure the order in which they will be required to repay their debts. This applies to both companies that are fully operational or who have filed for bankruptcy. Senior debt will receive prevalence before junior debt and will be paid off first.

For public companies who have publicly traded stock, shareholders and bondholders will receive the privilege of being paid first in the event of a company going out of business.

Senior Debt

Senior debt can be secured using company assets as a form of collateral. Using company assets allows lenders to have priority in case the company has to file for bankruptcy. The use of company assets as collateral can include physical equipment, real estate, property, or buildings.

Senior debt, like other types of debt, has a layer of interest. Companies that fail to make principal or interest payments will prioritize senior debt. Because this form of debt has priority it has been considered to carry the lowest risk factor associated with debts and loans.

Uses of Senior Debt

Some companies have found that using senior debt as a form of capital injection into their business or company can assist with a wide variety of operational and expansion liquidity.

Here are some of the most common uses of senior debt in modern-day business.

To assist with the financial capital for everyday funding: Funding everyday operations such as internal cash flow.
Recapitalization: Raising new capital as a way to recapitalize for certain investments, return of capital to investors and shareholders, or to fund dividends for personal liquidity.
Debt Restructuring: Using senior debt to repay existing debt.
Expansion of Growth: Gaining additional capital as a way to expand product offering or increase operational procedures.
Acquisitions: Using senior debt to acquire additional services, products and reach a larger market.

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