A typical capital structure comprises of debt and equity. In this video by Hamilton Lane, we learn that within the debt component, there are usually multiple layers of debt that can be broken down into senior debt and junior debt. The tradeoff in terms of returns to an investor is that the more junior the debt, the riskier the investment and the greater the potential returns. Conversely, senior debt is senior in priority meaning it is the first to be repaid which implies a higher degree of safety.

Watch this 2-minute video to learn the importance of seniority in the capital structure and the stability of performance that senior debt can offer.

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