Ranking

How are Eurobonds ranked compared to the other obligations of the issuer?

The prioritisation of coupon and principal payments versus other debt servicing commitments of a bond issuer depends on the ranking (level of seniority) of the Eurobond. Most commonly, Eurobonds rank above other credit facilities, loans or commitments the issuer may have and are said to have a “Senior” ranking. Senior ranked bonds can be either “Secured” (secured with collateral) or “Unsecured”.

One of the lowest ranks is “Subordinated”, which by itself can have a “Senior Subordinated” or “Junior Subordinated” ranking.

Ranking
Senior Secured / First Lien
Secured / Second Lien
Senior Unsecured
Senior Subordinated
Subordinated
Junior Subordinated
Preferred Equity
Common Equity

Perhaps the most important aspect of ranking a Eurobond against other commitments of an issuer, is the qualitative argument behind Eurobonds. Eurobonds have a more significant public profile than loans or credit facilities. As such, Eurobonds are continuously priced by participants in an active secondary market and have a more substantial and diversified investor base. For this reason, possible coupon payment and principal repayment delays will result in immediate and more public reputational damage and may even result in default.