Capital Deployment Risk · Debt, by priority (most senior first)
Senior Debt
Definition
Debt that has the first claim on a borrower's cash flow and, if secured, its collateral, ahead of subordinated debt and equity; for the lender it carries the lowest loss risk in the capital stack and the lowest pricing. Its priority over junior creditors rests on lien position and subordination agreements, which bankruptcy enforces to the extent they are enforceable under nonbankruptcy law[1].
Federal law
A market and contract term. No Act of Congress defines it; the federal laws below apply as described.
- Bankruptcy Reform Act of 1978, Pub. L. 95-598, § 101 (enacting 11 U.S.C. § 510), 92 Stat. 2549. Enforces subordination agreements that rank other debt behind senior debt (11 U.S.C. § 510(a)). Official text: govinfo.gov, U.S. Government Publishing Office.
- Bankruptcy Reform Act of 1978, Pub. L. 95-598, § 101 (enacting 11 U.S.C. § 506), 92 Stat. 2549. Treats a claim as secured to the extent of collateral value (11 U.S.C. § 506(a)). Official text: govinfo.gov, U.S. Government Publishing Office.