Seniority (financial)
Encyclopedia
In finance
, seniority refers to the order of repayment in the event of bankruptcy
.
Senior debt
must be repaid before subordinated debt is repaid. Bonds that have the same seniority in a company's capital structure
are described as being pari passu
.
The seniority of bonds recognised in FpML
(Financial products Markup Language) are as follows:
Finance
"Finance" is often defined simply as the management of money or “funds” management Modern finance, however, is a family of business activity that includes the origination, marketing, and management of cash and money surrogates through a variety of capital accounts, instruments, and markets created...
, seniority refers to the order of repayment in the event of bankruptcy
Bankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
.
Senior debt
Debt
A debt is an obligation owed by one party to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.A debt is created when a...
must be repaid before subordinated debt is repaid. Bonds that have the same seniority in a company's capital structure
Capital structure
In finance, capital structure refers to the way a corporation finances its assets through some combination of equity, debt, or hybrid securities. A firm's capital structure is then the composition or 'structure' of its liabilities. For example, a firm that sells $20 billion in equity and $80...
are described as being pari passu
Pari passu
Pari passu is a Latin phrase that literally means "with an equal step" or "on equal footing." It is sometimes translated as "ranking equally", "hand-in-hand," "with equal force," or "moving together," and by extension, "fairly," "without partiality."...
.
The seniority of bonds recognised in FpML
FpML
FpML is an XML message standard for the OTC Derivatives industry.All categories of privately negotiated derivatives will eventually be included within the standard...
(Financial products Markup Language) are as follows:
| FpML Value | Description |
|---|---|
| Senior | Top precedence |
| SubTier1 | Subordinate, Tier 1 |
| SubUpperTier2 | Subordinate, Upper Tier 2 |
| SubLowerTier2 | Subordinate, Lower Tier 2 |
| SubTier3 | Subordinate, Tier 3 |
See also
- Security interestSecurity interestA security interest is a property interest created by agreement or by operation of law over assets to secure the performance of an obligation, usually the payment of a debt. It gives the beneficiary of the security interest certain preferential rights in the disposition of secured assets...
- Secured creditorSecured creditorA secured creditor is a creditor with the benefit of a security interest over some or all of the assets of the debtor.In the event of the bankruptcy of the debtor, the secured creditor can enforce security against the assets of the debtor and avoid competing for a distribution on liquidation with...
- Senior debt
- Unsecured creditorUnsecured creditorAn unsecured creditor is a creditor other than a preferential creditor that does not have the benefit of any security interests in the assets of the debtor....
- Preferential creditorPreferential creditorA preferential creditor is a creditor receiving a preferential right to payment upon the debtor's bankruptcy under applicable insolvency laws....