If you have Entity A and Entity B that combine to make Holding Company C, and there is debt at each entity and holding company, why would a bank make sure that you pay off the debt in the entities first before paying off debt at the holding company.
Therefore, why is the debt at the holding company the "least senior (since it would be paid off last)?"
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I dont really follow your question as according to your hypothetical if you were to pay off debt in both Entity A and Entity B then there would be no remaining debt at the Holdco level. Generally, in this type of acquisition there would be a subsequent re-fi after the close and senior debt would obviously sit at the top of the debt structure with any type of bridge, mezz, or subordinated pieces below.
The more I read the question the less it makes sense but hopefully others will provide feedback as well.
Holdco level debt is structurally subordinated to debt at the entity level in theory because it is "further" from the actual assets and / or cash flow of the entities (usually, entity level notes will contain this sort of protection so that new financing can't be brought in on riskier terms and still get paid down on a pari passu or similar basis as the original notes).
There is no rhyme or reason as to why the subordination exists - it is simply something that gets priced in during the initial underwriting of the securities.
what do you mean by "further?"
Just that the debt actually sits at the Holdco level, while the assets and / or cash flow are at the entity level (if it helps, think of the two as first lien (entity level) and second lien (Holdco level) debt).
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