Which of the following is true about senior debt? Has the lest restrictive covenants because it...

Which of the following is true about senior debt?

Has the lest restrictive covenants because it is secured by the company's assets?

Since it is secured by the company's assets, lenders prefer to have the debt outstanding over time in order to generate more interest?

Usually uses PIK securities or come with warrants like mezzanine debt?

None of the above?

Solutions

Expert Solution

The correct option is since “it is secured by the company’s assets, lenders prefer to have the debt outstanding over time in order to generate more interest.”

Explanation: The senior debt is a class of debt which has the preferential rights at the time of the liquidation of the company. Senior debt are paid first at the time of the liquidation, therefore, they have the least level of risk associated with them. It has lower interest rate due to the lower risk involved. The senior debt is secured against the collateral. It means that in case of default, they can recover the debt via the sale of the collateral asset. As the loan is secured by collateral, therefore, the chances of bad debts are very low. Most of the senior debt holders wishes that the debt should be outstanding over a time in order to earn more interest revenue.

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ekkarill92 answered 1 year ago

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