Lowest Risk
Highest Risk
Application of Losses
Priority of Payment in Liquidation
Senior Debt
Unitranche Debt
Subordinated Debt
Mezzanine Debt
Equity
Click a debt type for more information
Senior Debt
A loan to be repaid first if the borrower defaults.
Senior debt has priority over more junior debt within the capital structure.
Typically secured by collateral or assets over which the lender has 'first lien' (first claim).
Less risky than more junior debt or equity.
The interest rate charged by the lender is often lower than for junior or subordinated debt.
Unitranche Debt
A combination of senior and subordinated debt in one instrument.
Issued by one debt provider and usually used to facilitate a leveraged buyout.
Created to simplify the debt structure, as one lender can satisfy the whole debt requirement.
As a combination of senior and subordinated debt, the interest rate charged often falls between the two.
Subordinated Debt
Also called 'junior debt' – a loan that is repaid after senior debt in the event of bankruptcy.
Subordinated to senior debt in the capital structure.
More risky than senior debt and attracts a higher interest rate.
Sits above equity in the capital structure meaning lenders are repaid before shareholders or owners.
Mezzanine Debt
Also known as 'hybrids' - a hybrid of equity and debt finance.
Senior only to common shares and equity in the capital structure.
Debt capital with rights to convert to equity ownership if the borrower defaults.
Contains 'embedded equity options' or 'kickers' such as stock call options, rights, or warrants.
Unsecured debt issued without collateral, therefore demanding a high interest rate.
Equity
The shares of a company are repaid last in the capital structure.
This is therefore the highest risk for shareholders in the event of bankruptcy.
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