Senior secured debt

Senior secured debt is the most senior layer of borrowing, repaid first and backed by a security package over specified assets. Because it ranks ahead of other claims and is collateralised, it usually carries the lowest cost of debt in the capital stack.

Forms the base of most project and acquisition financings.

Senior secured debt ranks first for repayment and is backed by a security package, so it carries the lowest cost of debt in the capital stack. Mezzanine debt sits below it, is subordinated and often unsecured or second-lien, and is priced higher — sometimes with payment-in-kind interest or warrants — to reflect the greater risk.

The amount depends on the quality of the assets offered as security and the cash flow available to service the debt. Lenders size facilities using measures such as loan to value and debt service coverage, so stronger collateral and steadier income support a larger senior layer at a lower cost.