What are different types of debt, ranked by seniority, and what are their key differences?
Before I jump into the different types of corporate debt, it’s probably helpful if I outline the key points of differentiation that companies and investors care about the most: • Security: The debt may or may not be secured against specific assets of the borrower. If it is secured against certain assets, this is called a “lien”. The debt can have a 1st lien, 2nd lien, etc which indicates the order of priority the debt holder has against the secured assets in the case of default. As an example, your mortgage probably includes a 1st lien on your home (i.e. your mortgage is secured by your home), so if you default the bank has 1st dibs on your home. • Covenants: These are restrictions or limitations placed on your business. The goal of these restrictions is to ensure that you don’t do anything that could increase the potential for default. Some common restrictions include how much additional debt you take on, how much you pay in dividends to shareholders, and how much you spend on acquisi
*Sadly, we had to bring back ads too. Hopefully more targeted.