Absolute priority

Absolute priority orders the waterfall: secured creditors first, then unsecured, then subordinated, then preferred, then ordinary equity. Each class must be satisfied in full before the next receives value.

It is why the capital structure determines outcomes in a restructuring. Where the enterprise value runs out decides who is made whole, who takes a haircut, and who is wiped out, and none of that is negotiable in principle.

In practice it is bent. Junior classes and equity often receive a small distribution to buy their consent and avoid litigation that would delay the process, and the value of speed can justify paying someone who is technically out of the money.

It also explains the negotiating positions. A fully covered senior lender cares about speed and certainty rather than valuation; the class where value breaks cares about nothing else.