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.
BREAKING DOWN '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.