Capital Deployment Risk · Cash and distributions
Fixed Priority Distributions
Definition
A payment order, set by contract, under which each class of capital is paid in sequence, with senior classes paid in full before junior classes receive anything; investors in later classes absorb losses first. When a deal enters bankruptcy, agreed subordination among creditors is enforced to the extent enforceable under nonbankruptcy law[1], while the statute itself sets a default order of distribution in liquidation[2].
Federal law
A market and contract term. No Act of Congress defines it; the federal laws below apply as described.
- Bankruptcy Reform Act of 1978, Pub. L. 95-598, § 101 (enacting 11 U.S.C. § 510), 92 Stat. 2549. Enforces contractual subordination among creditors in bankruptcy (11 U.S.C. § 510(a)); it does not govern equity waterfalls outside bankruptcy. Official text: govinfo.gov, U.S. Government Publishing Office.
- Bankruptcy Reform Act of 1978, Pub. L. 95-598, § 101 (enacting 11 U.S.C. § 726), 92 Stat. 2549. Sets the statutory default order of distribution in a chapter 7 liquidation (11 U.S.C. § 726(a)). Official text: govinfo.gov, U.S. Government Publishing Office.