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Senior Debt vs Subordinated Debt: What's the Difference?

When it comes to corporate debt, there are two main types: senior debt and subordinated debt. Senior debt is typically repaid first in the event of a default, while subordinated debt is repaid after senior debt. In this article, we'll take a closer look at the key differences between these two types of debt.

What is Senior Debt?

Senior debt is a type of corporate debt that has priority over other debts in the event of a default. In other words, if a company goes bankrupt, senior debt holders will be first in line to receive payments from the company's assets. Senior debt is typically issued in the form of bonds, and it typically has a lower interest rate than subordinated debt.

What is Subordinated Debt?

Subordinated debt is a type of corporate debt that is repaid after senior debt in the event of a default. In other words, if a company goes bankrupt, subordinated debt holders will be last in line to receive payments from the company's assets. Subordinated debt is typically issued in the form of bonds, and it typically has a higher interest rate than senior debt.

Key Differences

The key difference between senior debt and subordinated debt is that senior debt has priority over other debts in the event of a default, while subordinated debt does not. In other words, if a company goes bankrupt, senior debt holders will be first in line to receive payments from the company's assets, while subordinated debt holders will be last in line. Another key difference is that senior debt typically has a lower interest rate than subordinated debt.

Conclusion

In conclusion, senior debt and subordinated debt are two types of corporate debt. Senior debt has priority over other debts in the event of a default, while subordinated debt does not. In other words, if a company goes bankrupt, senior debt holders will be first in line to receive payments from the company's assets, while subordinated debt holders will be last in line. Another key difference is that senior debt typically has a lower interest rate than subordinated debt.

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