A junior issue is a stock or bond with a lower priority in respect to other securities issued by a company. Investors in these securities may not have voting rights, and are considered lower in the ranks in the event of a liquidation. They may be convertible into other forms, depending on the specific nature the specific junior issue. Documentation published with the security release should explain how many securities were issued, and will provide information about the rights and responsibilities of people who hold shares or bonds.
Companies commonly use junior issues as stock options for their employees. They may have the option of converting to senior issues, for a fee, which gives them access to priority in the event of liquidation. It can also create voting rights, in cases where a junior issue doesn't come with an opportunity to participate in votes. A junior issue can also be sold to members of the public interested in trading a company’s stocks or bonds.
Stocks entitle people to a share in the company; investors provide capital, and in return can receive dividends as well as selling the stock to other parties for a profit when the value rises. If the company liquidates, that capital is returned to registered shareholders. Bonds are debt instruments used to raise money for corporate activities. Loans provided by bondholders are repaid, with interest, over time.
In the case of stock, a junior issue comes with fewer rights. When companies liquidate and distribute their cash, people holding these stocks are towards the end of the line of shareholders. People holding senior issues are more likely to be repaid in full if the company has limited assets. With bonds, junior issues are unsecured, and in the event of bankruptcy may only be partially repaid, if at all. This makes the junior issue much riskier for investors, because there is a chance of losing the initial investment in a crisis.
Documentation on shareholders and bonds is maintained by a company to make sure records are current. People should make sure they are the registered owners of any securities they hold, and may want to review the specific information accompanying their issues so they know what to expect. This information can also be useful for prospective securities purchasers when they want to decide which kinds of shares to buy, so they make the right choice for their needs. Annual reports can be a good resource for information on past issues.
