{"id":3490,"date":"2019-09-06T12:00:00","date_gmt":"2019-09-06T12:00:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=3490"},"modified":"2026-03-31T12:59:00","modified_gmt":"2026-03-31T12:59:00","slug":"seniority-rankings-corporate-debt","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/fixed-income\/seniority-rankings-corporate-debt\/","title":{"rendered":"Seniority Rankings of Corporate Debt"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"VideoObject\",\n  \"name\": \"Fundamentals of Credit Analysis (2025 Level I CFA\u00ae Exam \u2013 Fixed Income \u2013 Module 6)\",\n  \"description\": \"This video covers the fundamentals of credit analysis in fixed income markets, including credit risk components, corporate debt seniority, issuer credit ratings, rating agency risks, the 4 Cs of credit analysis, financial ratio evaluation, yield spread influences, and special considerations for high-yield and sovereign debt.\",\n  \"uploadDate\": \"2022-06-02T00:00:00+00:00\",\n  \"thumbnailUrl\": \"https:\/\/img.youtube.com\/vi\/zSl9z7qQB00\/maxresdefault.jpg\",\n  \"contentUrl\": \"https:\/\/youtu.be\/zSl9z7qQB00\",\n  \"embedUrl\": \"https:\/\/www.youtube.com\/embed\/zSl9z7qQB00\",\n  \"duration\": \"PT41M6S\"\n}\n<\/script>\n\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"A UK-based group has senior unsecured bonds as well as both first- and second-lien debts. Which of the following ranks higher with respect to priority of claim?\",\n    \"text\": \"A UK-based group has senior unsecured bonds as well as both first- and second-lien debts. Which of the following ranks higher with respect to priority of claim?\\n\\nA. Second-lien debt.\\nB. Senior unsecured bonds.\\nC. Senior subordinated debt.\",\n    \"answerCount\": 1,\n    \"upvoteCount\": 0,\n    \"dateCreated\": \"2025-12-16T00:00:00+00:00\",\n    \"author\": {\n      \"@type\": \"Organization\",\n      \"name\": \"AnalystPrep\"\n    },\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The correct answer is A. Second-lien debt ranks higher than senior unsecured bonds or senior subordinated debt because it is secured, giving it priority of claim over unsecured obligations.\",\n      \"dateCreated\": \"2025-12-16T00:00:00+00:00\",\n      \"upvoteCount\": 0,\n      \"url\": \"https:\/\/analystprep.com\/cfa-level-1-exam\/fixed-income\/seniority-rankings-corporate-debt\/\",\n      \"author\": {\n        \"@type\": \"Organization\",\n        \"name\": \"AnalystPrep\"\n      }\n    }\n  }\n}\n<\/script>\n\n\n\n<iframe loading=\"lazy\" \n  width=\"611\" \n  height=\"344\" \n  src=\"https:\/\/www.youtube.com\/embed\/zSl9z7qQB00\" \n  title=\"YouTube video player\" \n  frameborder=\"0\" \n  allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" \n  referrerpolicy=\"strict-origin-when-cross-origin\" \n  allowfullscreen>\n<\/iframe>\n\n\n\n<p>Capital structure is the composition of a company\u2019s debt and equity, such as bank debt, bonds of all seniority rankings, preferred stock, and common equity. Various debt obligations can have different seniority rankings. This, obviously, implies different priority of payment. The most senior or highest-ranking debts have the first claim on the assets in the event of default.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Secured and Unsecured Debt<\/strong><\/h2>\n\n\n\n<p>Secured bonds have a direct claim (usually a pledge) from the issuer on certain assets. On the other hand, unsecured bondholders have only a general claim on the issuer\u2019s assets. As a result, in the event of default, unsecured debtholders\u2019 claims are ranked below those of secured creditors. This simply means that secured bondholders will get paid in full before unsecured bondholders receive any payment.<\/p>\n\n\n\n<div style=\"text-align: center; margin: 22px 0;\">\n  <div style=\"max-width: 680px; margin: 0 auto;\">\n    <a href=\"https:\/\/analystprep.com\/free-trial\/\" target=\"_blank\" rel=\"noopener noreferrer\"\n       style=\"display: flex; align-items: center; justify-content: center;\n       width: 100%; padding: 10px 18px;\n       border: 2px solid #1e5bd8; color: #1e5bd8;\n       border-radius: 9999px; text-decoration: none; font-weight: 600;\">\n      Practice corporate debt seniority rankings with our free trial\n    <\/a>\n  <\/div>\n<\/div>\n\n\n<h2><strong>Seniority Ranking<\/strong><\/h2>\n<p>Within each category of debts, there are finer grades (or types) of rankings:<\/p>\n<ol>\n<li>First-Lien Loan \u2013 Senior Secured<\/li>\n<li>Second-Lien Loan \u2013 Secured<\/li>\n<li>Senior Unsecured<\/li>\n<li>Senior Subordinated<\/li>\n<li>Subordinated<\/li>\n<li>Junior Subordinated<\/li>\n<\/ol>\n<h3><strong>Secured Debt<\/strong><\/h3>\n<p>Within secured debt, there is the first-lien debt, which is the highest-ranking debt. First-lien debt refers to a pledge of certain assets.<\/p>\n<p>Pledged assets are usually transferred to the lender from the borrower to secure the debt. Ownership of the asset remains with the borrower during the loan period. When the debt has been repaid, the pledged asset is transferred back to the borrower. The lender assumes ownership of the assets if the borrower defaults on the loan.<\/p>\n<h3><strong>Unsecured Debt<\/strong><\/h3>\n<p>Among unsecured debts, there are: senior unsecured debt, senior subordinated debt, subordinated debt, and junior subordinated debt. The lowest priority of claims frequently has little or no recovery in the event of default. In other words, loss severity could be as high as 100%.<\/p>\n<h3><strong>Why Issue Different Kinds of Debts?<\/strong><\/h3>\n<p>The reasons for issuing different seniority rankings are that:<\/p>\n<ul>\n<li>the issuers are interested in optimizing the cost of capital; and<\/li>\n<li>it is less expensive to offer subordinated debt, and subordinated debt does not dilute existing shareholders.<\/li>\n<\/ul>\n<p>All creditors at the same level of capital structure are considered as members of the same class. This is referred to as bonds ranking pari passu (\u201con an equal footing\u201d).<\/p>\n<blockquote>\n<h3><strong>Question<\/strong><\/h3>\n<p>A UK-based group has senior unsecured bonds as well as both first and second-lien debts. Which of the following ranks higher with respect to priority of claim?<\/p>\n<ol style=\"list-style-type: upper-alpha;\">\n<li data-tadv-p=\"keep\">Second-lien debt.<\/li>\n<li data-tadv-p=\"keep\">Senior unsecured bonds.<\/li>\n<li data-tadv-p=\"keep\">Senior subordinated debt.<\/li>\n<\/ol>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is <strong>A<\/strong>.<\/p>\n<p>Second-lien debt ranks higher than either senior unsecured debt or senior subordinated debt because of its secured position.<\/p>\n<\/blockquote>\n\n\n<div style=\"text-align: center; margin: 30px 0;\">\n  <a style=\"display: inline-flex; align-items: center; justify-content: center; padding: 12px 26px; border-radius: 9999px; background: #1e5bd8; color: #ffffff; font-weight: bold; text-decoration: none;\" href=\"https:\/\/analystprep.com\/free-trial\/\" target=\"_blank\" rel=\"noopener noreferrer\">\n    Start Free Trial \u2192\n  <\/a>\n  <p style=\"margin-top: 12px; font-size: 16px; line-height: 1.5;\">\n    Practice creditor hierarchy, recovery priority, and credit risk concepts with CFA Level I exam-style questions.\n  <\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Capital structure is the composition of a company\u2019s debt and equity, such as bank debt, bonds of all seniority rankings, preferred stock, and common equity. Various debt obligations can have different seniority rankings. This, obviously, implies different priority of payment&#8230;.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[9],"tags":[],"class_list":["post-3490","post","type-post","status-publish","format-standard","hentry","category-fixed-income","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Seniority Rankings of Corporate Debt | CFA Level 1<\/title>\n<meta name=\"description\" content=\"Learn about debt seniority, including secured and unsecured debt, first liens, and the hierarchy of repayment during liquidation. 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