Comment of the following statement: "A senior secured creditor has little risk of realizing a loss if the issuer goes into bankruptcy."

What will be an ideal response?

When a company goes bankrupt there are varying degrees of risk for all creditors. Even though the risk can be "little" or small relatively speaking compared to junior unsecured claimants, there is still some risk for senior secured creditors. This is because seniority does not always insure that payments owed will be made for the following reasons. First, the assets of the bankrupt firm may not provide sufficient payments even for senior secured creditors who must compete with other entities including the IRS and unpaid employees. Second, the seniority ranking can be at least partially overturned so that junior claimants receive some payments at the expense of more senior claimants. In conclusion, it is important to recognize that the superior legal status of any debt obligation will not prevent creditors from suffering financial loss when the issuer's ability to generate cash flow adequate to pay its obligations is seriously eroded.