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Creditors always have greater seniority than shareholders, that's why shareholders demand higher returns.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Mar 13th, 2012 at 12:38:25 PM EST
[ Parent ]
There are more tiers of seniority than "creditors" and "shareholders" or "debt" and "equity".

Interestingly, in English there's "equity" and "debt" = "fixed income", but in Spanish there's no word for "equity". Rather there's "fixed income" (renta fija) and "variable income" (renta variable).

What makes equity more risky than debt is not the seniority but the discretionality of dividend payments.

There are three stories about the euro crisis: the Republican story, the German story, and the truth. -- Paul Krugman

by Migeru (migeru at eurotrib dot com) on Tue Mar 13th, 2012 at 01:12:55 PM EST
[ Parent ]
Well, that too.

But of course, there are differnt kinds of seniority when it comes to bonds as well, and the more junior bonds pay higher interest. That's completely reasonable and not mysterious at all.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Mar 13th, 2012 at 01:27:50 PM EST
[ Parent ]

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