What is Junior Equity?
Junior equity is an issuance of stock issued by a company.that is to other
How Does Junior Equity Work?
For example, if Company XYZ preferred stock, those are senior to Company XYZ's common stock shareholders. This means that should Company XYZ go bankrupt, the preferred shareholders are entitled to before the common shareholders are. The common stock is therefore the junior .
Why Does Junior Equity Matter?
Owners of senior equity get their hands on leftover before others in the event of bankruptcy. Accordingly, owners of junior equity (those further down in the pecking order) are more likely to get stiffed. That is, the more an owner or is, the weaker its claim on the company's assets. This is why the more junior the equity is, the higher the return investors demand.