Corporate Bonds

Question: When you buy a corporate bond and the company goes under?

Who would get paid first?
The bills, the bond holders?

BP is offering a 2 year corporate at 7.3%.
Not that I would consider it.

Answer: In general the senior bond holders, along with the creditors committee own the company. (Prior poster said creditors were paid first and that is NOT correct. Bond holders are usually in a higher class than general creditors.)

The common shareholders are usually wiped out. How much you will be paid depends on the class of debt you buy.

There are models that look at past bk's to determine potential haircuts that you will take in bk to help the market price the bonds. At BP's current rating level you would likely see a haircut between 93 to 82% of the principal. But right now there is no way to know how much the total liability will be.

Kiesel Says Pimco Buying BP Bonds `Fairly Aggressively': Video