Page 31 - FINAL CFA SLIDES DECEMBER 2018 DAY 15
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LOS 55.c: Describe seniority rankings of corporate Session Unit 16:
debt and explain the potential violation of the 55. Fundamentals of Credit Analysis
priority of claims in a bankruptcy proceeding., p.128
Priority of claims to payments (or assets) –ranking of each category of debt from the same issuer in
the event of a default (also called seniority ranking).
Debt can be either secured debt or unsecured debt. Secured debt is backed by collateral, while
unsecured debt or debentures represent a general claim to the issuer’s assets and cash flows.
Secured debt has higher priority of claims than unsecured debt and can be further distinguished as first
tanties
lien or first mortgage (where a specific asset is pledged), senior secured, or junior secured debt.
Unsecured debt is further divided into senior, junior, and subordinated gradations. The highest rank of
unsecured debt is senior unsecured. Subordinated debt ranks below other unsecured debt.
The general seniority rankings for debt repayment priority are the following:
• First lien or first mortgage.
• Senior secured debt.
• Junior secured debt. All debt within the same category is said to rank pari passu, or
• Senior unsecured debt. have same priority of claims.
• Senior subordinated debt.
• Subordinated debt.
• Junior subordinated debt.
