What does blanket subordination ensure in debt repayment hierarchy?

Blanket subordination ensures that senior debt holders are fully repaid before mezzanine payments are made. This concept is fundamental within the hierarchy of debt repayment in structured finance. When a debt is subordinated, it means that the repayment of that debt is placed in a lower priority compared to other debts, specifically senior debt.

In the context of a company's capital structure, senior debt holders have the first claim on the company's assets and cash flows in the event of liquidation or bankruptcy. This seniority provides them with a more secure position because they are paid back before other types of debt, such as mezzanine financing. Therefore, blanket subordination reinforces this sequence, clearly stating that payments to mezzanine debt will not occur until the obligations to senior debt have been fully satisfied.

Other options do not accurately reflect the principle of blanket subordination. For example, prioritizing mezzanine debt over senior debt contradicts the very essence of subordination. Additionally, while the transferability of interests may be relevant to debt instruments, it does not relate to the repayment priority established by blanket subordination. Lastly, treating all debts equally conflicts with the hierarchical structure that blanket subordination seeks to establish.