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Senior Loans

Senior debt is the complex of medium / long-term loans , which bear a preferential repayment clause with respect to other payables.

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Their duration is between five and eight years and their total repayment always precedes the amortization of subordinated debt and any mezzanine debt used to complete the financing of the operation.

Senior debts represent, on average, over 50% of the total financial resources necessary to proceed with the purchase and are provided by traditional banks or, as is more frequently the case, by bank unions . In assessing the amount of the loan that can be granted, it is necessary to take into account the size and dynamics of the company’s cash flows and the value of the assets can be taken as collateral for the loan. In some cases the pledging of shares is also requested.

 

In the tradition buy-outs, the use of two different types of senior debt is widespread:

  • senior secured debt characterized by the existence of collateral on specific activities;
  • the senior unsecured debt, without the aforementioned guarantees.

 

The senior debt repayment is made over a period of time ranging between 5 and 8 years. The possibility of early repayment on the initiative of the debtor is often provided for.

Senior loans are assisted by special restrictions (covenants) that protect creditors from the risk of possible opportunistic behavior by the management.

The negative covenants take the form of prohibitions (for example not to resort to new debts with higher guarantees) or limitations.

The positive covenants consist of the commitment to comply with certain obligations to make (for example the obligation to use any surplus cash in the early repayment of loans ).