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Basic Question 11 of 16
Which type of bonds has the highest ranking with respect to priority of claims?
B. third lien debt
C. senior unsecured dent
A. senior subordinated debt
B. third lien debt
C. senior unsecured dent
User Contributed Comments 4
| User | Comment |
|---|---|
| czar | please could someone explain this? |
| SKIA | A lien is what a person can put against you for not paying a debt. For example, if you don't pay a car repair bill and then try and sell your car (even after it is paid off), you won't be able to do so because the car mechanic has put a "mechanic's" lien against it. Therefore, they have first claim. |
| ascruggs92 | ^Correct. In other words, lien debt is collateralized, making it secured debt. Secured debt is senior to unsecured debt, and A has the word subordinate in it so it's obviously not the highest ranking. |
| khalifa92 | nicely said. |
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Learning Outcome Statements
describe the seniority rankings of debt, secured versus unsecured debt and the priority of claims in bankruptcy, and their impact on credit ratings
CFA® 2024 Level I Curriculum, Volume 4, Module 16.