Priority spreading refers to the practice of firms increasing their reliance on secured and subordinated debt and reducing their reliance on senior debt as their credit quality deteriorates. We argue that priority spreading occurs, in part, because security provides creditors with greater...

We examine changes in debt structure when firms experience financial distress. At these points in time, firms refinance and undergo substantial changes in priority structure. Specifically, we find that firms di- versify their priority structure relative to its pre-distress composition. We show,...