CFA Level I · CFA Level I Exam · Credit Analysis for Corporate Issuers
In a corporate bankruptcy that follows the absolute priority of claims, which of the following creditors is most likely to be paid first from the proceeds of liquidation?
First-lien secured bondholders are paid first, from the pledged collateral. Their claim attaches to specific assets, so it ranks ahead of senior unsecured and subordinated creditors under the priority of claims in a liquidation.
- ASenior unsecured bondholders
- BSubordinated debenture holders
- CFirst-lien secured bondholders paid from the pledged collateralCorrect
Explanation
Secured creditors have a first claim on the specific collateral pledged to them, so they are paid from that asset before unsecured creditors. Senior unsecured holders rank below secured claims, and subordinated holders rank below senior unsecured holders.
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