Senior Security

AAA

DEFINITION of 'Senior Security'

A security that ranks above another security in the event of the company's bankruptcy or liquidation. A senior security is called such because it is considered "senior" to another in the company's hierarchy of capital providers. Should the company go bankrupt or face another liquidating event, holders of the senior-most security will be in line to receive repayment of their invested monies first, before other creditors receive any payment. Next in line would be holders of the second-most senior security.




INVESTOPEDIA EXPLAINS 'Senior Security'

Debt is always considered senior to equity. In terms of debt, secured debt is considered senior to unsecured debt, such as debentures, while preferred securities are considered senior to common shares.

Because of its greater degree of safety, a senior security will generally offer lower returns than securities below it in the hierarchy. Common stock, which is typically the least senior security in a company, generally offers investors the highest potential returns to compensate for this additional degree of risk.

RELATED TERMS
  1. Senior Convertible Note

    A debt security that contains an option where the note will be ...
  2. Absolute Priority

    A rule that stipulates the order of payment - creditors before ...
  3. Senior Debt

    Borrowed money that a company must repay first if it goes out ...
  4. Preferred Dividend

    A dividend that is accrued and paid on a company's preferred ...
  5. Subordinated Debt

    A loan (or security) that ranks below other loans (or securities) ...
  6. Bankruptcy

    A legal proceeding involving a person or business that is unable ...
RELATED FAQS
  1. How can I create a yield curve in Excel?

    You can create a yield curve in Microsoft Excel if you are given the time to maturities of bonds and their respective yields ... Read Full Answer >>
  2. What are the different formations of yield curves?

    There are three main different formations of yield curves: normal, inverted and flat yield curves. The yield curve describes ... Read Full Answer >>
  3. What is the difference between the rule of 70 and the rule of 72?

    The rule of 70 and the rule of 72 give rough estimates of the number of years it would take for a certain variable to double. ... Read Full Answer >>
  4. On what basis does the sustainable growth rate fluctuate?

    The main difference between a bond’s yield to maturity, or YTM, and the spot rate is that the YTM uses the same interest ... Read Full Answer >>
  5. What are some classes I can take to prepare for the Series 6 exam?

    The risk-return tradeoff for bonds is the increased yield investors can obtain from corporate and other types of bonds that ... Read Full Answer >>
  6. What level of return on equity is average for companies in the chemicals sector?

    The modified duration is an adjusted version of the Macaulay duration and takes into account how interest rate fluctuations ... Read Full Answer >>
Related Articles
  1. Investing Basics

    The Dirt On Delisted Stocks

    Listed securities are "the cream of the crop". Find out how a firm can lose that status and why you should be wary.
  2. Retirement

    Bankruptcy Protection For Your Accounts

    Will the plan assets you've worked hard for be safe if you experience a personal financial crisis?
  3. Mutual Funds & ETFs

    How To Profit From Debt Securities In Failing Companies

    Learn about the vulture funds that prey on the market's weakest companies by investing in distressed debt.
  4. Bonds & Fixed Income

    An Overview Of Corporate Bankruptcy

    If a company files for bankruptcy, stockholders have the most to lose. Find out why.
  5. Retirement

    What You Need To Know About Bankruptcy

    Don't choose this last-resort option until you learn how it will affect your future.
  6. Professionals

    Why You Should Avoid Fixating on Bond Duration

    Financial advisors and their clients should then focus on a bond fund’s portfolio rather than relying on any single metric like duration.
  7. Investing

    The Case For Stocks Today

    Last week, U.S. equities advanced with the S&P 500 Index notching new records. Investors are now getting nervous with rate and currency volatility spiking.
  8. Mutual Funds & ETFs

    Why You May Want To Be (And Stay) In Bonds

    Bonds are complicated, and it’s easy to feel intimidated or confused. Fortunately, you don’t need to be a numbers geek to be an informed investor.
  9. Investing

    Why Some Investors Are Tilting Toward TIPS

    Last month’s five-year TIPS auction drew nearly $48 billion in interest, a sign of recent renewed demand for this inflation indexed asset among investors.
  10. Mutual Funds & ETFs

    The EMAG Emerging Mkts Bond ETF: Worth the Risk?

    The Market Vectors Emerging Markets Aggregate Bond ETF (EMAG) might offer long-term rewards, but is now the best time to jump in?

You May Also Like

Hot Definitions
  1. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  2. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  3. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  6. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
Trading Center