Senior debt is a financial obligation that is not subordinated to other debt of the borrower, it ranking ahead of other secured debt, unsecured debt and subordinated debt with regard to claim on the borrower’s earnings and assets.  Secured lending enables the lender to take legal action to reclaim and sell the assigned or pledged collateral in the event of the borrower’s default on the debt.

Recovery Rate of US Secured Debt 1987-2007
Financial Instrument Mean %
Secured Revolving Credit 80.2%
Secured Term Loans 71.2%
Senior Secured Bonds 55.9%
Source: S&P’S

Secured debt generally has full priority over any unsecured claim in bankruptcy but only up to the value of the collateral.  Any portion of the secured lender’s claim that is not satisfied by the assets in which the security interest was taken ranks as any other unsecured, unsubordinated debt, having general creditor status.

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