What is senior debt?
- Definition
- Senior debt is generally secured at the “base” of the capital stack. Because it sits at the base of the capital stack, it must be repaid first.
The “base” of the capital stack, senior debt is generally secured debt that must be repaid first, before junior debt, mezzanine debt, preferred equity, and common equity, respectively.
Senior debt holders retain the right to foreclose on their property, sell it through a trustee, and recoup the fair market value of the property, up to the loan amount, including principal, interest, and fees.
Senior debt generally carries less relative risk to other portions of the capital stack, and is therefore less expensive.
Most senior debt lenders are large financial institutions with pooled capital such as banks, insurance companies, and pension funds.
