A note that takes precedence over other debt securities, in the same class, in the event that the issuer goes bankrupt and is forced into liquidation. In other words, senior notes have a higher priority than other securities/ claims (all other more junior and subordinated debt) belonging to the same asset class in the event of a default or bankruptcy.
It is a type of debt security that has a superior claim on the assets and income of the issuer, in case the issuer faces certain types of financial stress. Holders of such notes will be given priority over other investors holding other securities with lower claim on the resources of the issuer.
Senior notes are, by nature, associated with less risk compared to other securities that rank lower in terms of priority. Note issues are structured with different levels of priority of claim on the assets and other economic resources of the issuer in the event of pre-defined financial problems. Notes that have lower claim on the issuer’s assets are known as junior notes.
A senior note also differs from a junior note in terms of the interest rate that each type carries. Since a senior debt comes with lower amount of risk than a junior debt, the rate of interest carried by the senior security is less than the rate carried by a junior or subordinated note.
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