Senior Security Definition
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.
A Little More on What is a Senior Security
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.
References for Senior Security
Academic Research on Senior Securities
Wealth effects of going private for senior securities, Marais, L., Schipper, K., & Smith, A. (1989). Journal of Financial Economics, 23(1), 155-191.
Optimal investment proportions in senior securities and equities under alternative holding periods, Levy, H., & Gunthorpe, D. (1993). The Journal of Portfolio Management, 19(4), 30-36.
The price effects of secondary offerings of senior securities and warrants, Linn, S. C., & Pinegar, J. M. (1991). Journal of Banking & Finance, 15(3), 683-698.
Senior Securities in the Capital Structures of Commercial Banks, Cole, D. W. (1966). The Journal of Finance, 21(1), 127-128.
Exploring rating shopping for european triple a senior structured finance securities, Fabozzi, F. J., Nawas, M. E., & Vink, D. (2017). Finance Research Letters, 20, 35-39.
… , Vice President and Head of the Poverty Reduction and Economic Management (PREM), Catiana García-Kilroy, Senior Securities Markets Specialist, and …, Caputo, O. C. C. A. by Otaviano Canuto,
Common structures of asset-backed securities and their risks, Sabarwal, T. (2006). Corporate Ownership and Control, 1(4), 1-25.
Ownership and control in entrepreneurial firms: an examination of convertible securities in venture capital investments, Gompers, P. A. (1997). Unpublished working paper, Harvard Business School.
Minsky’s ‘Cushions of Safety’, systemic risk and the crisis in the subprime mortgage market, Kregel, J. (2008). Finance & Bien Commun, (2), 51-59.
Do investors rely only on ratings? The case of mortgage-backed securities, Adelino, M. (2009). Job Market Paper, MIT Sloan School of Management and Federal Reserve Bank of Boston.