Legal Definitions - junior security

A junior security is a type of security that is subordinate to other securities in terms of priority of payment. A security is a type of financial instrument that represents ownership in a company or government entity, or a promise to pay back borrowed money with interest.

For example, if a company issues bonds to raise money, those bonds are a type of security. If the company also issues preferred stock, that is another type of security. If the company runs into financial trouble and cannot pay all of its debts, the holders of the bonds will be paid first, before the holders of the preferred stock. The preferred stock is considered a junior security because it is lower in priority for payment.

Another example of a junior security is a second mortgage on a house. If the homeowner defaults on the mortgage and the house is sold to pay off the debt, the first mortgage holder will be paid first, before the second mortgage holder. The second mortgage is considered a junior security because it is lower in priority for payment.

In summary, a junior security is a type of financial instrument that is lower in priority for payment than other securities. Examples include preferred stock and second mortgages.