What does "Seniority" determine in the event of a company bankruptcy?

The concept of "Seniority" in the context of bankruptcy primarily pertains to the order of claims that creditors have over a company's assets when the company undergoes liquidation or is involved in a bankruptcy proceeding. In a bankruptcy scenario, different classes of debt will have varying degrees of priority for repayment.

Seniority dictates that higher-ranking creditors are entitled to be paid before those with subordinate claims. For instance, secured creditors, who have specific collateral backing their loans, typically have the highest seniority and are paid first from the proceeds of asset sales. Following them would be unsecured creditors, and then equity holders, who are last in line to receive any remaining assets after all debt obligations have been satisfied.

Understanding this hierarchy is crucial because it influences the recovery rates for different types of creditors and impacts the overall risk assessment involved in leveraged financing. The other options, while related to debt and refinancing, do not specifically capture the essence of what seniority focuses on during bankruptcy proceedings.