CandleFocus Glossary Editor
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A senior bank loan is a type of corporate debt financing featuring a senior ranking on the borrower's balance sheet. Senior bank loans are structured as a bundle of loans, which is then sold to investors. This form of corporate financing can provide the borrower with additional liquidity, while the investors receive high-yield returns.
When a company takes out a senior bank loan, their other debt obligations are subordinated to it. As such, in the event of a bankruptcy, senior bank loans receive priority and payment before other creditors, preferred stockholders, and common stockholders. As a security measure, these loans are typically secured with a lien against the borrower's assets.
A major feature of senior bank loans is that the interest rate is typically floating rather than fixed. This is beneficial to the lender, as it allows them to receive a higher return if the benchmark rates rise. Additionally, the lender also has less to lose if the rates fall since they are more easily able to adjust prices based on market conditions.
The unique features of senior bank loans make them attractive both to investors and borrowers. For the borrowers, these loans can help to provide extra liquidity when needed. As for the investors, the high-yield returns offer protection from inflation, as well as a greater chance of recovering the entirety of their loan if the borrower defaults.
A senior bank loan is a type of corporate debt financing featuring a senior ranking on the borrower's balance sheet. Senior bank loans are structured as a bundle of loans, which is then sold to investors. This form of corporate financing can provide the borrower with additional liquidity, while the investors receive high-yield returns.
When a company takes out a senior bank loan, their other debt obligations are subordinated to it. As such, in the event of a bankruptcy, senior bank loans receive priority and payment before other creditors, preferred stockholders, and common stockholders. As a security measure, these loans are typically secured with a lien against the borrower's assets.
A major feature of senior bank loans is that the interest rate is typically floating rather than fixed. This is beneficial to the lender, as it allows them to receive a higher return if the benchmark rates rise. Additionally, the lender also has less to lose if the rates fall since they are more easily able to adjust prices based on market conditions.
The unique features of senior bank loans make them attractive both to investors and borrowers. For the borrowers, these loans can help to provide extra liquidity when needed. As for the investors, the high-yield returns offer protection from inflation, as well as a greater chance of recovering the entirety of their loan if the borrower defaults.