Identification

• A senior security is a debt instrument issued by a corporation that has priority status over common and preferred stockholders in the allocation of corporate assets in the event of a liquidation.
  
  

Senior Security

• Corporate debt acquires its seniority status over common and preferred stock because the corporation is contractually obligated to make annual interest payments and pay off the principal amount of the debt to bondholders when it matures or comes due in the future.
  
  

Types

• A corporation may issue different classes of senior securities each with a different priority repayment status. Some of the bonds may be denoted as unsecured, others may be issued with a certain secured or preference status.
  
  

Secured status

• The secured or unsecured status of each bond can be created by contractual agreement between the corporation and the bondholders or through collateralization or liens on the physical assets of the issuing corporation.
  
  

Priority of payment

• In the event of a corporate bankruptcy, unsecured or subordinated debt ranks behind secured or unsubordinated debt in terms of payment priority.