Which security grants its holder a prior claim to the issuer's assets in liquidation?

• A. Senior Security
• B. Subordinated debt
• C. Debenture
• D. Revenue Bond

Answer: (A)

The key idea is how creditors are paid in liquidation: the order of seniority determines who has the first claim on the issuer’s assets. A security that carries priority over other debts is referred to as a senior security. In liquidation, senior claims are paid before subordinated ones, and secured creditors with liens typically have the highest priority on the pledged assets. Debentures are usually unsecured and paid after secured and senior unsecured claims, while revenue bonds are secured by specific revenues rather than the issuer’s general assets, so they don’t automatically grant a broader prior claim on all assets. Therefore, the instrument that provides a prior claim on the issuer’s assets in liquidation is the senior security.