Thomas   FAQ   April 02, 2012  

What are the seniorities of Corporate Bonds?

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Seniority means the order of repayment in the event of a sale or bankruptcy of the respective institution, Senior debt is repaid before subordinated (or junior) debt is repaid.

Subordinated debt or junior debt ranks after other debts should a company fall into liquidation or bankruptcy.

In the case of liquidation (e.g. the company winds up its affairs and dissolves) the corporate bonds would be paid just before stockholders. This assumes there are assets to distribute after all other liabilities and debts have been paid. Therefore subordinated debt bonds have a lower priority than other bonds.

A particularly important example of subordinated bonds can be found in bonds issued by banks. Subordinated debt can be expected to be financially more sensitive, because subordinated debt holders have claims on bank assets after senior debt holders.

Higher interest rates are generally paid to Subordinated Corporate bonds to compensate for the higher risk of being paid (in Bankruptcy) after Senior Corporate bonds.

We recommend that KMI clients and visitors to our site check the level of seniority of the specific chosen corporate bond prior to purchase.

PfML (Financial products Markup Language) Bond ratings:

Senior = Top precedence
SubTeir 1 = Subordinate Tier 1
SubUpperTier2 = Subordinate upper tier 2
SubLowerTier2 = Subordinate lower Tier 2
SubTier3 = Subordinate Tier 3

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