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Basic Question 2 of 7
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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Colin Sampaleanu
Learning Outcome Statements
describe seniority rankings of corporate debt and explain the potential violation of the priority of claims in a bankruptcy proceeding;
CFA® 2024 Level I Curriculum, Volume 5, Module 47.