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Bonds

Assessing Default Risk on Bonds

What is the order of priority of payment during a bankruptcy or liquidation of a company or corporate entity?

In order to determine the order of priority of paying creditors during a bankruptcy or liquidation of a company or corporate entity, we start by looking at the company’s assets. Those investors who are entitled to a piece of the value of a company’s assets, in order of priority, include investors who hold senior debt/bonds, investors who hold subordinated debt/bonds, and shareholders. When a company is given credit, it is often stipulated that some sort of collateral be offered in order to secure the credit. Secured bonds are generally first to receive any proceeds from the sale of collateral of the company or corporate entity should it enter into bankruptcy or liquidation.



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