Liquidation Priority (Capital Structure)
Who gets paid first when a company is liquidated.
What is Liquidation Priority (Capital Structure)?
After legal and administrative claims, the order is: secured creditors (backed by specific collateral), unsecured creditors including debenture holders, subordinated debt holders, preferred stockholders, and finally common stockholders. Higher priority means lower risk and, generally, lower expected return.
Liquidation Priority (Capital Structure): a worked example
In a bankruptcy, mortgage bondholders may recover most of their principal while common shareholders receive nothing.
More terms in Economics & Financial Reporting
Business Cycle
The recurring pattern of expansion, peak, contraction, and trough.
Leading, Coincident & Lagging Indicators
Data series that move before, with, or after the business cycle.
Deflation vs. Disinflation
Falling prices versus a slowing rate of price increases.
Currency Valuation & Exchange Rates
What one currency buys of another, and who wins when it moves.
Sovereign Debt
Bonds issued by a national government.
Trade Deficit
A country imports more goods and services than it exports.
Income Statement
Revenue, expenses, and profit over a period of time.
Balance Sheet
Assets, liabilities, and equity at a single point in time.