Senior secured debt.
In plain English
Senior secured debt combines two protections: first position in the repayment line and a legal claim on named assets. If the borrower defaults, the lender can move against that collateral rather than wait in line with everyone else. Both features push the interest rate down, because the lender is taking less risk. The collateral can be equipment, receivables, real estate, or in many corporate loans nearly all assets of the business. Being senior is about order and being secured is about a specific pile of property, and the two are separate ideas that often travel together.
01Why it matters
In a bankruptcy, senior secured lenders usually recover far more than anyone else, which is why the same company's different debts can be worth wildly different amounts.
02The math, step by step
Say a company borrows 40 million secured by a warehouse and equipment worth 50 million, and separately issues 30 million of unsecured notes. In a default the secured lender sells the collateral and collects its 40 million in full. The unsecured holders split whatever is left of the other assets.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
It is not about the borrower's size or reputation. Senior secured describes rank and collateral inside one company's capital structure. A small firm can issue senior secured debt, and a household-name company can issue unsecured notes that sit behind it.
04Receipts
Every figure on this page is sourced to a primary document. Tap to open the original.
Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice