Question

what is the payment priority for corporate finance?

Coupon Y 15 15 YIM? 3. Note the following: Issue Par A XYZ Subordinated Notes Due 12/31/21 B XYZ Mortgage Notes Due 12/31/39 $5,000 C XYZ Senior Notes Due 9/1/29 D XYZ Junior Subordinated Notes Due 12/31/21 $1. TM 1.75% 3.2% Price $1,000.98 $4,978.77 3.17% 1.95% $1,005,86 What is their order of payment priority?

Answer 1

The Order of payment priority arises in the case of Bankruptcy .

Mortgage notes are secured and are paid before other debt holders are paid

Senior notes are unsecured but rank above subordinated debt and are paid next

Subordinated and Junior subordinated notes comes last and are paid at the end. Even between these two, we can see that the priority of Junior subordinated notes is the last and hence are more risky and carry higher YTM than the subordinated notes

So, the order is

Mortgage Notes > Senior Notes > Subordinated notes> Junior Subordinated notes