The Relationship Between Debt and Equity

Bob Greene: Debt is senior to equity. So if there's some problem, the person who has a debt claim is getting made hole first. He says bonds rank ahead of equity in the priority of claim in the event of something bad happening. When things aren't going well, and let's say your cash flows come in far lower than anticipated, his stock price will go down because it's not as credit-worthy. The bond market doesn't even look at the value of the bonds before they do their equity analysis. It's crazy, but that's just the way the equity world works," he says.