What you need to know about debt seniority


Debt Structure

Seniority refers to the order of repayment in the event of a sale or bankruptcy of the issuer. Senior bond will have their first claims on the remaining asset as compared to junior (subordination) bonds. “pari passu” is normally used to describe the equal debt ranking of the new senior bonds issuance versus other senior bonds of a company.

Debt Covenants

Debt covenants are promises made by the issuer not to engage in certain actions which normally cover a wide range of parameters. Some common debt covenants are debt ratios, ownership of the company and liquidity.