Definition
Senior debt
Senior debt is a type of loan secured by collateral that must be repaid first in the event of a company default.
Senior debts are loans secured by collateral (assets) that must be paid off before any other debts when a company goes into default. The lender in this case is paid out of the sale of the company’s assets in priority sequence.
Their priority position makes senior debts less risky for lenders. As a result, the interest rates and repayment terms for senior debt tend to be more favourable than junior debt, that only has a secondary claim on company assets.