Teleflex, the Wayne based medical device producer, is planning to offer $400 million in senior notes to repay the close to $393 million in debt on its revolving credit facility.

Senior notes present an enticing prospect for investing as they offer a steady, longer-term return. But before taking the plunge, there are a few things to bear in mind.

1. Senior notes are bonds which have repayment priority over other unsecured debt in the case of bankruptcy. This means that if the company defaults, holders of senior notes will have precedence over holders of other bonds and unsecured debt in the distribution of the company’s assets.
2. The seniority over other holders of debt gives these notes a certain level of security. Thanks to being nearer to the top of the repayment ladder, investors who are holding senior notes usually manage to recover significantly more of their investment in case of bankruptcy.  
3. Due to the lower risk ranking, senior bonds usually pay a correspondingly lower rate of interest as the level risk assumed through their purchase is lower and is reflected in the return.
4. Despite their higher position in the repayment ladder, senior notes are not without risk. If the company has limited assets to liquidate after bankruptcy, even those first in line for repayment might not receive the full amount owed to them.
5. In some cases senior notes can be offered as convertible notes, giving the bondholder an option of converting them to shares. This can be an attractive alternative, but care needs to be taken before exercising this option.

Check out previous VISTA Today coverage of Teleflex here.