medium · Debt Capital Markets bond-instruments-structures
A borrower is seeking to refinance $500 million of Second-Lien debt with $500 million of Senior Unsecured Notes.
How does this 'refinancing' affect the Senior Secured Leverage ratio, assuming EBITDA is constant?
- The ratio decreases because unsecured notes are a cheaper form of borrowing for the issuer.
- The ratio remains unchanged because Second-Lien debt is not usually included in Senior Secured Leverage.
- The ratio increases because total outstanding debt is constant while the security backing it has been removed.
- The ratio increases because Senior Unsecured Notes outrank Second-Lien debt in the liquidation payment waterfall.
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