Seniority (finance)

Okay kiddo, have you ever heard of seniority? It's like when you're playing with your friends and your big brother wants to play too. He might get to go first or pick which game to play because he's older and has more seniority.

In finance, seniority is kind of like that too. When a company needs to borrow money, they might issue bonds - which are like fancy IOUs - to investors. These bonds come in different "levels" of seniority, kind of like how your big brother has a higher seniority than you or your friends.

The most senior bonds are called "senior secured" bonds. These bonds are backed by specific assets, like buildings or equipment, and are the first to get paid back if the company can't pay all its debts.

But if the company still can't pay all its debts after paying back the senior secured bonds, then the "senior unsecured" bonds get paid next. These bonds don't have specific assets backing them up, but they still get paid back before the "junior" bonds.

The "junior" bonds are the least senior. They might be called "subordinated" or "mezzanine" bonds. These bonds are the riskiest because they only get paid back after all the senior bonds have been paid back first. So if the company runs into trouble and can't pay all its debts, the junior bondholders might not get paid back at all.

So just like how your big brother gets first pick at playing games, the more senior bonds get paid back first in finance.