What is a Senior Security?

A senior security refers to the security or financial instrument that occupies the highest rank when compared to other debts and equities of a company. This is the security has has utmost priority over others in the event of a company's liquidation. Also, when it comes to the order of repayment, this security is placed above others. Therefore, a senior security takes the lead in claims on assets and income of a company unlike other securities of the same company.

How Does a Senior Security Work?

A senior security has more value and rank than other securities in terms if assets and income of a company. However, when we talk if a company's capital structure, the senior security is the highest in order of repayment for securities holders. Hence, holders of senior securities are ranked higher in repayment structure. Aside from having higher ranks, they have utmost priority than others common stockholders, in the sense that they get paid first by the issuing corporation. Senior security offers its holder a level of safety that others might not enjoy but at the same time, its returns are lower that common stock returns.