Everything in distressed investing resolves to a single question: who gets paid, in what order, out of what. The capital structure is the map of that answer. Until you can draw one from a 10-K without help, nothing else in this field will make sense.
The stack, from the top down
In a conventional leveraged structure, running from the strongest claim downward: super-priority DIP financing (in a bankruptcy); an ABL revolver secured by a first lien on receivables and inventory; a first lien term loan secured by substantially all other assets; a second lien term loan on the same collateral, junior by agreement; senior unsecured notes; subordinated notes; preferred equity; common equity.
Each layer differs on four dimensions you must record every time: size (face amount outstanding), security (what collateral, at what priority), guarantees (which entities in the group are obligated), and maturity (when it comes due). Analysts new to the field record size and maturity and skip the other two. The other two are where the money is.
Structural subordination
Priority has a second dimension that has nothing to do with liens. If the operating assets sit in a subsidiary, and that subsidiary has its own creditors, those creditors are paid from the subsidiary's assets before any value flows up to the parent. A parent-level unsecured noteholder is therefore structurally subordinated to subsidiary creditors, even if its documents say nothing about subordination at all.
This is why entity-level detail matters. A capital structure diagram that shows tranches without showing which entity issued them and which entities guarantee them is not finished. In a group with a holding company, an intermediate holdco, and twelve operating subsidiaries, the same nominal seniority can produce wildly different recoveries depending on where the claim sits.
The intercreditor agreement
Where two or more secured classes share a collateral pool, an intercreditor agreement governs their relationship. It sets out who may enforce and when, standstill periods during which the junior class must wait, payment blockage provisions, the treatment of proceeds, and — critically for bankruptcy — how each class may vote on a plan and whether the junior class has agreed in advance not to object to a DIP the senior class supports.
These agreements are negotiated between sophisticated parties and they are enforced. A second lien lender who has waived its right to object to a priming DIP has waived it, and discovering this after you have bought the paper is an expensive way to learn to read documents.
Building the diagram
Start with the most recent 10-K or 10-Q. The debt footnote gives you tranches, amounts, rates, and maturities. The exhibit index gives you the credit agreement and indentures. The subsidiary list (Exhibit 21) gives you the entity map. Cross-check against the latest 8-Ks for amendments, new issuances, and repayments since the last periodic filing.
Draw it by hand before you build it in a spreadsheet. The physical act of placing each tranche at an entity and drawing the guarantee arrows is what makes structural subordination visible. A spreadsheet will happily let you sum debt across entities that cannot access each other's assets.