Junior Issue

Written By
Paul Tracy
Updated July 29, 2021

What is a Junior Issue?

A junior issue is an issuance of securities that are subordinate to other securities issued by a company. Junior issues can be debt or equity.

How Does a Junior Issue Work?

For example, if Company XYZ issues preferred stock, those shares are senior to Company XYZ's common stock shareholders. This means that should Company XYZ go bankrupt, the preferred shareholders are entitled to repayment before the common shareholders are. The common stock is therefore the junior issue.

In another example, if Company XYZ issues bonds, the bondholders are creditors who are senior to Company XYZ's shareholders. This means that should Company XYZ go bankrupt, the bondholders are entitled to repayment before the shareholders are. Let’s say Company XYZ needs more capital now, and it borrows money from Bank ABC. Who gets paid first? The bondholders or Company XYZ? It depends on what Company XYZ negotiates with Bank ABC, but it is likely that Bank ABC is now holding junior debt, meaning that if Company XYZ goes belly up, the bondholders get paid first, then Bank ABC, then the shareholders (if there’s anything left).

Why Does a Junior Issue Matter?

Owners of senior securities get their hands on leftover cash before others in the event of bankruptcy. Accordingly, owners of securities from a junior issue (those further down in the pecking order) are more likely to get stiffed. That is, the more subordinate an owner or issuer is, the weaker its claim on the company's assets. This is why the more junior an issue is, the higher the return investors demand.

Activate your free account to unlock our most valuable savings and money-making tips
  • 100% FREE
  • Exclusive money-making tips before we post them to the live site
  • Weekly insights and analysis from our financial experts
  • Free Report - 25 Ways to Save Hundreds on Your Monthly Expenses
  • Free Report - Eliminate Credit Card Debt with these 10 Simple Tricks
Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Junior Issue.
Be the first to ask a question

If you have a question about Junior Issue, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

If you have a question about Junior Issue, then please ask Paul.

Ask a question Read more from Paul
Paul Tracy - profile
Ask an Expert about Junior Issue

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms