Creditor ranking defines the order of priority in which creditors are repaid in the event of a company's liquidation or restructuring. The ranking is established by law and contract and determines both the expected recovery rate in a distressed scenario and the pricing of debt instruments — higher-ranked creditors accept lower returns in exchange for greater security; lower-ranked creditors demand higher spreads to compensate for subordination risk. Understanding creditor ranking is essential for any financial due diligence and for structuring a LBO debt stack.

In a typical LBO or restructuring, the creditor ranking from senior to junior is: (1) Super-senior secured creditors (RCF, new money in restructuring); (2) Senior secured creditors (Term Loan A and B, first lien); (3) Second lien creditors; (4) Mezzanine / subordinated creditors; (5) High yield bondholders; (6) Trade creditors and other unsecured creditors; (7) Shareholders. In French insolvency law, the ranking is modified by statutory super-priorities (employee claims via AGS, tax authorities, certain social charges) that take precedence over contractual senior secured creditors in liquidation.

In Switzerland (SchKG), the ranking similarly provides for three classes of preferred creditors (Klassen 1, 2, 3) — employees, social insurance, certain tax claims — before general unsecured creditors. In Franco-Swiss cross-border restructurings, the interaction between French and Swiss ranking rules creates complexity that requires expert legal and financial analysis.

At Hectelion, we model creditor ranking and recovery scenarios in our distressed due diligences and restructuring structuring mandates.