junior debt

Think about how they used to share meat at a big Owambe when the caterer was running low. The elders and the couple's parents got their plates first, heaped and settled. Whatever remained went round to the rest of the hall, and if the pot finished before it reached your table, that was simply your luck.

Junior debt lives on that leftover table. When a company borrows money from more than one lender, the loan agreements decide who eats first if things go wrong. Senior lenders, often banks holding proper collateral, are served first from whatever is left when a company sells assets or goes under. Junior lenders, sometimes called subordinated lenders, wait their turn, and they only get paid after the senior people have collected every kobo owed to them.

Because junior lenders are taking on more risk, they usually charge a higher interest rate to make the risk worth carrying. A Lagos manufacturing company might borrow ₦300,000,000 from a bank as senior debt secured against its factory equipment, and then raise another ₦100,000,000 as junior debt from a private investment fund at a steeper rate, because that fund knows it stands further back in the queue if the company struggles.

In the United Kingdom, private equity firms often use junior debt, sometimes called mezzanine finance, to fund company buyouts alongside senior bank loans, accepting the extra risk in exchange for a bigger return. For a Nigerian in London sending money home to help a family business expand, it helps to know that if that business ever takes on both senior and junior loans, the family's own contribution and any junior lender sit behind the senior bank in the pecking order.

The lesson is simple and it applies far beyond company balance sheets. Whoever takes the biggest risk in any deal is usually the one negotiating for the biggest reward, and whoever agrees to wait at the back of the line should always ask what is actually left to eat by the time their turn comes.