Senior debt is typically provided by banks and has a higher priority claim on assets and cash flows than junior debt. Given this higher priority, senior debt is safer and features a lower interest rate. The interest rate is based on a floating rate, which is a benchmark rate (typically 1-month SOFR) plus a 400-600 bps (4-6%) spread.
Senior debt is prepayable, meaning the borrower can pay it down with excess cash flows at any time. It may also have a mandatory repayment requirement (also known as mandatory amortization) which must be met in order to not default.
Junior debt is typically provided by credit funds and has a lower priority claim on assets and cash flows than senior debt. Given this lower priority, junior debt is riskier and features a higher interest rate. The interest rate is based on a fixed rate that does not change. Sometimes, a portion or all of this interest can be PIK interest, which means the payment of the interest expense is deferred until the debt is due or the company is sold, and the interest owed is accrued such that it increases the debt balance.
Junior debt is not prepayable, which means the borrower cannot pay it down anytime. Instead, it features bullet amortization which means that all the debt is paid down at the end of the term or when the company is sold.
Some types of junior debt such as mezzanine and convertible debt can be converted to equity at a discount to give the lender upside exposure.