Could someone please explain the hierarchy of debt? I know that secured debt is of higher priority than say junk bonds, but what about between a revolver and a term loan?
Any help would be appreciated. Thanks.
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revolver and term loan are usually part of the bank debt which is just like any other secured security, backed by the assets of the business.
in other words, term loans are usually secured debt. where it gets a bit more complicated is when there are multiple term loans and some are "1st lien" and others are "2nd lien"...ie, the 1st lien has higher priority than the 2nd lien.
example of a typical capital structure: -revolver and term loan A (secured) -2nd lien loan / term loan B (secured less) -Bonds (unsecured) -Preferred Equity / Mezzanine Debt, maybe with some warrants (unsecured) -Common Equity (unsecured)
does that help?
Yes, that does help.
So there is no priority differentiation between a revolver and term loan A in the example you provided?
Also:
When you say senior secured is higher than junk bonds you must be referring to just bonds in genereal. The term junk bonds (high yield) refers to the credit rating of a company (non investment grade
Revolver or credit facility could be viewed as a "credit card", a company you can tap into borrowing more when you pay off your outstanding amount.
However, with a term loan, you cannot constantly go back and borrow.
At least that is my understanding, please correct me if I am wrong thanks!
usually the Term Loan A and Revolver are made by the same Bank as one "commitment" and are subject to the same security provisions.
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