Seniority, within the context of a Delaware Statutory Trust (DST) industry, refers to the hierarchy or order of claims and interests in the trust’s income and assets. This concept is particularly relevant in scenarios such as the distribution of income or the liquidation of assets, where beneficiaries or interest holders have different levels of priority.
Here’s a more detailed explanation:
- Investor Seniority: In a DST, investors might have different classes or tranches of beneficial interests. Senior interests are usually those with priority in receiving distributions or repayment in the case of liquidation, often up to a certain agreed-upon amount. Such senior interests might be considered less risky and therefore might offer lower returns.
- Debt Seniority: If a DST has borrowed funds, the lenders might have seniority over the beneficiaries in terms of claims against the trust’s assets or income. The DST might have various loans, each with a different level of seniority, determining the order in which they will be repaid.
- Asset Seniority: In cases where a DST holds multiple assets, there might be a seniority structure determining which assets are liquidated first to meet obligations or how the income from each asset is distributed among beneficiaries.
- Management Fee Seniority: Managers or sponsors of the DST might have fees or carried interests that are considered senior to those of the ordinary investors, meaning that they are paid before the investors receive their distributions.
In DST industries and other structured investments, understanding seniority is crucial for investors and other stakeholders to assess the risk and reward profile of their investment or interest. Different levels of seniority represent different levels of risk exposure, affecting the investment’s attractiveness and pricing.