easy · Investment Banking

Under the Absolute Priority Rule, if preferred shareholders receive a recovery in a reorganization, what must be true about the unsecured creditors?

1. They must have been completely wiped out in the process.
2. They must have been paid in full (or satisfied in full) before any value could flow to the preferred shareholders.
3. They must be the 'Fulcrum Security' in the capital structure.
4. They must have agreed to take a 50 percent loss on their claims.

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