Basic introduction to super senior, senior, mezzanine and junior debt

The following Restructuring & Insolvency practice note provides comprehensive and up to date legal information covering:

  • Basic introduction to super senior, senior, mezzanine and junior debt
  • Capital structures
  • Super senior debt
  • Senior debt
  • Second lien debt
  • Mezzanine debt
  • Junior debt
  • Mezzanine/junior standstills
  • Payment priorities and waterfalls
  • Examples of capital structures pre and post restructuring
  • More...

Basic introduction to super senior, senior, mezzanine and junior debt

The range of funding options open to companies has exploded, resulting in a vast array of different capital and security structures. Before the 2007/8 credit crunch, it was common to see senior debt (usually held by banks), followed by mezzanine debt and then junior debt, all of which ranked above unsecured creditors and shareholders/equity holders.

Immediately following the 2007/8 credit crunch, banks were less willing or able to lend new monies and so companies increasingly looked to the capital markets to maximise access to credit. This has resulted in more layers of debt plus the emergence of senior secured bonds, which rank much higher up the capital structure (see Practice Note: Bonds and notes) and super senior facilities.

Capital structures

Traditionally, external debt was incurred at the operating company (Opco) level; Opcos hold the main assets of the business (eg premises, key manufacturing equipment and valuable IP licences) and generate the bulk of the profits. Accordingly, lenders were keen to take security over these assets. Lending may also take place at the holding company (Holdco) level for various accounting, tax and other reasons.

The relationship between all the lenders is usually governed by intercreditor agreements (see Practice Note: Intercreditor agreements for R&I lawyers).

Super senior debt

In deals where high yield bonds provide the only term debt in the structure,

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