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Senior Subordinated Debt means any obligation of the Guarantor to its creditors, whether now outstanding or subsequently incurred, where the instrument creating or evidencing the obligation or pursuant to which the obligation is outstanding, provides that it is subordinate and junior in right of payment to Senior Debt.
What is meant by subordinated debt?
Subordinated debt is any type of loan that’s paid after all other corporate debts and loans are repaid, in the case of borrower default. Borrowers of subordinated debt are usually larger corporations or other business entities.
What is a senior subordinated structure?
Senior-Subordinate Structure means a Debt issue that provides Creditors a claim against revenues pledged for Debt repayment or other Debt security that is either senior or subordinate to a claim against the same revenues or security of Creditors to other 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 the difference between senior 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.
Is senior unsecured debt subordinated?
Senior Unsecured Debt means indebtedness for borrowed money that is not subordinated to any other indebtedness for borrowed money and is not secured or supported by a guarantee, letter of credit or other form of credit enhancement.
Can senior debt be unsecured?
Senior debt is usually unsecured and backed by the general assets of the company.
Is subordinated debt considered equity?
Subordinated debt, “sub-debt” or “mezzanine”, is capital that is located between debt and equity on the right hand side of the balance sheet. It is more risky than traditional bank debt, but more senior than equity in its liquidation preference (in bankruptcy).
What are the benefits of subordinated debt?
Advantages of Subordinated Debt The capital is maintained on balance sheet. Subordinated debt is less expensive than alternatives such as equity. No counterparty risk, capital is fully paid up and not contingent. It enhances return on equity and avoids dilution.
Why would a company issue subordinated debt?
Banks issue subordinated debt for various reasons, including shoring up capital, funding investments in technology, acquisitions or other opportunities, and replacing higher-cost capital. In the current low interest rate environment, subordinated debt can be relatively inexpensive capital.
What is the difference between mezzanine debt and subordinated debt?
Mezzanine debt is subordinated debt with some forms of equity enhancement attached. Regular subordinated debt just requires the borrowing company to pay interest and principal. With mezzanine debt, the lender has a piece of the action in the company’s business.
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.
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 subordinated debt always unsecured?
Junior, Subordinated Bonds This is unsecured debt, meaning no collateral exists to guarantee at least a portion. Bonds in this category are often referred to as debentures.
What is subordinate debt for MSME?
Under CGSSD, guarantee coverage was provided to the eligible borrower for the credit facilities extended wherein the promoter of the MSME was given credit equal to 15 per cent of his/her stake (equity plus debt) or Rs 75 lakh whichever was lower.
Why is subordinated debt Tier 2 capital?
Tier 2 is designated as the second or supplementary layer of a bank’s capital and is composed of items such as revaluation reserves, hybrid instruments, and subordinated term debt. It is considered less secure than Tier 1 capital—the other form of a bank’s capital—because it’s more difficult to liquidate.
What is the difference between senior and subordinated debt?
Senior debt has the highest priority and, therefore, the lowest risk. Thus, this type of debt typically carries or offers lower interest rates. Meanwhile, subordinated debt carries higher interest rates given its lower priority during payback. Subordinated debt is any debt that falls under, or behind, senior debt.
What are the benefits of an unsecured loan?
The main advantages of an unsecured loan include: You don’t have to leverage any of your assets to secure funds. Your loan approval may be completed faster because there are no assets to evaluate. Unsecured loans may be a better option for borrowing smaller amounts.
What is a senior unsecured rating?
Related Definitions Senior Unsecured Rating means the opinion of a Rating Agency of the ability of an entity to honor senior unsecured financial obligations and contracts denominated in foreign and/or domestic currency.
What are senior unsecured obligations?
Senior Unsecured Obligations means senior Indebtedness that is not secured by a Lien.
What is considered unsecured debt?
An unsecured debt is a debt for which the creditor does not have a security interest in collateral, and the creditor is therefore not entitled to take property from you to satisfy that debt without a judgment. Common types of unsecured debt are credit cards, medical bills, most personal loans, and student loans*.
What is the security for senior subordinated debentures?
Senior Subordinated Bond means any debt security (that is not a Bank Loan) that is (i) subordinated to any senior debt obligations of the related issuer and (ii) senior to any other subordinated debt obligations of the related issuer.
