medium · Investment Banking rx-dcm-ecm

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 with zero recovery earlier in the absolute priority waterfall.
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 formally designated as the Fulcrum Security somewhere within the overall capital structure of the company.
4. They must have formally negotiated and mutually agreed to accept a fifty percent loss on their outstanding unsecured claims.

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