The priority ladder, from secured debt to equity
1. Secured debt gets paid first from collateral (buildings, equipment). Lowest risk, lowest yield.
2. Senior unsecured bonds are next. No collateral, but higher priority than junior debt.
3. Subordinated bonds are junior to senior debt. Higher yield compensates for lower priority.
4. Preferred stock sits between bonds and common stock. Fixed dividends but no guarantee.
5. Common stock gets whatever is left. In bankruptcy, this is usually nothing.
Typical recovery rates by seniority
Typical recovery rates in bankruptcy (cents on the dollar)
Source: Illustrative recovery rates; actual outcomes vary by industry, vintage, and bankruptcy specifics.
Explore a company's debt layers
In the Credit view, explore the debt maturity wall and capital structure for any company. Notice how different debt tranches have different priorities.
Why seniority changes the investment case
Who gets paid in a Chapter 7 liquidation
A company files for Chapter 7 (liquidation). Capital stack: $500M senior secured debt, $500M subordinated debt, equity. Asset sale nets $400M. Who gets paid?
Check your understanding
Sit with the ideas.
A company goes bankrupt. It has $500M in assets, $300M in senior secured debt, and $400M in senior unsecured debt. What do senior secured creditors receive?
Why: