Senior debt
Senior debt is the highest-priority financing tranche that a lender recovers first in the event of default. It is secured by assets or explicit collateral and carries the lowest interest rate in the capital structure because of its superior safety.
In practice
In a leveraged buyout of a franchise network, senior debt typically represents 50 to 60% of the purchase price. Banks grant this financing based on free cash flow coverage (DSCR). If EBITDA falls 30%, a leverage covenant may be triggered, forcing early repayment or renegotiation. Senior debt often coexists with more expensive mezzanine debt that bridges the remaining valuation gap.