easy · Debt Capital Markets bond-instruments-structures
A borrower has a $1,000 million capital structure consisting of $600 million in Senior Secured Loans and $400 million in Senior Unsecured Notes.
If the company is sold for $500 million in a liquidation, how is the proceeds distributed?
- The $500 million is split pro-rata between both debt classes.
- The Secured Loans receive $500 million, and the Unsecured Notes receive $0.
- The government seizes the $500 million as a penalty for the default.
- The Unsecured Notes receive their full $400 million first.
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