Capital Structure
Corporate Credit Analysis glossary · Capital Structure & Debt Mechanics
Definition
The mix of debt and equity financing in a firm's balance sheet, including the seniority hierarchy of debt tranches (secured, unsecured, subordinated) that determines recovery in default.
Capital Structure in plain English
Capital structure is simply HOW a company paid for everything it owns — with borrowed money (debt) versus owners' money (equity). Think of buying a house: the mortgage is debt (you must repay it) and your down payment is equity (your own stake). It matters most when things go wrong: if the company fails, there's a strict payback line — 'secured' lenders (backed by specific assets) get paid first, then 'unsecured,' then 'subordinated' (last in line), and equity owners get whatever crumbs remain, often nothing. A credit analyst studies this line to judge how much they'd actually recover if the borrower defaults.
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