1. Senior Debt Overview
Now if we bring a capital stack into the left hand side,
what we wanna do here is focus our attention to the top of
the stack, to the senior debt. Senior debt will often involve a revolver
or a revolving line of credit, which is typically coming from a bank.
While the revolver is a short term piece of debt, that lender would
also be supplying longer term pieces of debt in the form of term
loans, these would have a fixed schedule where they would be repaying or
they'd be amortized and have a final principal repayment, and they can be
stacked, you could have a term loan A and a term loan B,
et cetera. Now, in order to assess the capacity for senior debt,
the lender would often be looking to provide two to three times the
EBITDA that the company generates. It also may require at least two times
interest coverage. Now, typically, these senior debt loans would be provided
by commercial banks, credit companies and insurance companies.
2. Let's practice!