Glossary
Credit and risk
What is absolute priority?
No junior class gets value while a dissenting senior class isn't paid in full.
The rule that makes a cramdown 'fair and equitable'. Gifts that skip a dissenting class run into it.
A worked example
The business is worth $500m. The first lien is owed $400m and the second lien $300m. Under absolute priority, the first lien is paid in full, the second lien gets the remaining $100m, and equity gets nothing unless the second lien agrees to give some up.
Where it catches you in the game
- The plan negotiations room checks it before a cramdown; breaking it gets confirmation denied.
It comes up most on the restructuring desk.
Related terms
Learn it by using it
Definitions stick once they've cost you money. Take a seat, make three calls a year and watch what absolute priority does to your returns.