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Can a junior loan have a higher principal than a senior loan?
Junior loans (or “junior mortgages” or “second-lien” debt holders or mezzanine capital) have a lower priority than a first or prior (senior) lender. In the event that a borrower defaults, the lien priority determines the order in which lenders are repaid. In general, senior lenders are always repaid first.
What is Senior loan and Junior loan?
Junior Debt. Senior Debt is a type of non-current debt, which has the very first repayment priority at the time of liquidation or bankruptcy. Junior Debt is also a type of non-current debt, which gets second repayment priority in comparison to Senior Debt at the time of liquidation or bankruptcy.
Which lien is highest in priority?
A first lien has a higher priority than other liens and gets first crack at the sale proceeds. If any sale proceeds are left after the first lien is paid in full, the excess proceeds go to the second lien—like a second-mortgage lender or judgment creditor—until that lien is paid off, and so on.
What is a junior loan?
A second mortgage or junior-lien is a loan you take out using your house as collateral while you still have another loan secured by your house. The term “second” means that if you can no longer pay your mortgages and your home is sold to pay off the debts, this loan is paid off second.
What is the difference between senior debt and junior debt?
Junior debt refers to bonds or other debts that have been issued with lower priority than senior debt. Unlike senior debt, junior debt is not typically backed by any type of collateral. As a result of these attributes, junior debt tends to be riskier and carry higher interest rates than senior debt.
What is considered senior debt?
Senior debt is debt and obligations which are prioritized for repayment in the case of bankruptcy. Senior debt has the highest priority and therefore the lowest risk. Thus, this type of debt typically carries or offers lower interest rates.
What is a super senior loan?
What is it? Labelled ‘first out’ in the US and ‘super senior’ in Europe, this is a revolving credit facility (RCF) which has priority over other pari passu debt in relation to the proceeds of enforcement of collateral and, in the US, guarantee recoveries.
What is senior leverage?
“Senior Leverage Ratio” shall mean the ratio of Senior Debt of the Parent and its Subsidiaries on a consolidated basis to EBITDA for the twelve (12) month period most recently ended.
What is the difference between senior and mezzanine debt?
Mezzanine debt is a hybrid form of capital that is part loan and part investment. Senior debt is a loan from a bank. Banks lend off of asset values so most senior loans are collateralized with assets. The bank loan is always secured and in the first position.
What type of lien takes priority over all other liens?
Mortgage liens usually take priority over any other lien except tax liens.
Which lien is an example of a superior lien?
The superior category includes liens for real estate tax, special assessments, and inheritance tax. Other liens, including income tax liens, are inferior. the order of the liens’ claims on the security underlying the debt.
Which option best defines an equitable lien?
An equitable lien is a claim on property by someone other than the owner when an unpaid debt is owed.
What do junior loans typically include?
Understanding Junior Mortgage Common uses of junior mortgages include piggy-back mortgages (80-10-10 mortgages) and home equity loans. Piggy-back mortgages provide a way for borrowers with less than a 20% down payment to avoid costly private mortgage insurance.
Can a junior mortgage foreclosure?
However, a junior lienholder is still capable of foreclosing out junior lienholders without the necessity of the senior lienholder being party to the action because foreclosure of those junior lienholders has no effect on the senior lienholder’s rights to the property.
Is a junior lien bad?
In short, consensual liens do not adversely affect your credit as long as repayment terms are satisfied. Statutory and judgment liens have a negative impact on your credit score and report, and they impact your ability to obtain financing in the future.
How is senior debt calculated?
There are several measures to typically estimate a company’s maximum subordinated debt: Total debt to EBITDA ratio of 5-6 times. As mentioned above, senior debt typically accounts for 2-3 times debt to EBITDA, hence the remaining for subordinated debt. EBITDA to cash interest of about 2 times.
Is debt senior to equity?
Senior debt has greater seniority in the issuer’s capital structure than subordinated debt. It is a class of corporate debt that has priority with respect to interest and principal over other classes of debt and over all classes of equity by the same issuer.
Can senior debt be unsecured?
Senior debt is usually unsecured and backed by the general assets of the company.
Is a term loan senior debt?
In US law-governed loan transactions, TLBs are senior debt and are usually not subordinated to other indebtedness of the borrower.
Is revolving credit facility senior debt?
Revolving credit facility (revolver), which can be paid down and reborrowed as needed. – Term debt (senior and subordinated) with floating rates. Payments-in-kind (PIK) toggle allows no interest payment and increase in principal.
Is revolver a subordinated debt?
A revolver is a form of senior bank debt that acts like a credit card for companies and is generally used to help fund a company’s working capital needs. The interest rate charged on the revolver balance is usually LIBOR plus a premium that depends on the credit characteristics of the borrowing company.
