Absolute Priority Rule
Corporate Credit Analysis glossary · Distressed Debt & Restructuring
Definition
A principle of US bankruptcy law requiring that no junior class receive value under a reorganisation plan unless all senior classes are paid in full or consent.
Absolute Priority Rule in plain English
When a company goes bankrupt, there isn't enough money to pay everyone, so someone has to decide who gets paid first. The absolute priority rule says you pay the top-of-the-line (senior) lenders in full before anyone lower down (junior) — like shareholders — gets a single dollar, unless the senior group agrees to share. It's basically a strict "wait your turn" line: the people at the front must be fully satisfied before the back of the line receives anything.
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