hard · Debt Capital Markets
An issuer has two bonds outstanding: a Senior Secured bond at the Operating Company (OpCo) and a Senior Secured bond at the Holding Company (HoldCo). The HoldCo bond is secured by the equity of the OpCo.
In a liquidation, why is the OpCo bond considered senior to the HoldCo bond?
- The OpCo bond carries a higher credit rating from the agencies.
- The OpCo bond has a direct claim on the physical assets, while the HoldCo bond has a claim only on residual equity value.
- The HoldCo bond is contractually subordinated via an intercreditor agreement.
- HoldCo bonds are always legally required to be unsecured under the Basel III framework.
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