Bond Defaults - Rights of Bondholders

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In theory:

•Unsecured bondholders:

–Ranked parri-passu with all other unsecured creditors

•Secured bondholders:

–Rights to the assets secured to the bondholders

•Subordinated bondholders:

–Ranked lower than the unsecured creditors

In Practice: There are a few loop holes that bondholders can exploit. This is especially so with bonds that was issued when then the market initially boomed. As time progresses, lessons learned from previous defaults have been incorporated into the latest legal documents so as not to provide the legal means to do something that goes again the original understanding.