- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 16. Credit Analysis for Corporate Issuers
- Subject 3. Seniority Rankings, Recovery Rates, and Credit Ratings
CFA Practice Question
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
Correct Answer: B
Third lien debt has the highest ranking due to its secured position.
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. |