junior debt

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Junior debt (subordinate debt)

Debt whose holders have a claim on the firm's assets only after senior debtholder's claims have been satisfied. Subordinated debt.

Junior Debt

A class of debt that, in the event of insolvency, is prioritized lower than other classes of debt. The most common kind of junior debt is an unsecured loan, which has no collateral. Another kind of junior debt is a secured loan in which another loan has priority on the collateral; a second mortgage is an example of a secured junior debt. This class of debt carries higher risk but also pays higher interest than other classes.

junior debt

A class of debt that is subordinate to another class of debt issued by the same party. Junior debt is more risky for an investor to own, but it pays a higher rate of interest than debt with greater security. Debentures are junior debt. Compare senior debt.
References in periodicals archive ?
The following proposition provides the values of the senior and junior debts under Case 1, which realistically applies to more firms than Case 2.
One of our objectives is to identify the optimal proportions of senior and junior debts in the total debt amount that maximizes the firm's market value.
It is supported by the evidence reported by Bris, Ravid, and Sverdlove (2010) that 56% of the sampled firms that filed for Chapter 7 bankruptcy had both senior and junior debts.
Accordingly, the time-0 values of the senior and junior debts are given, respectively, by:
Finally, a salient feature of Figure 6 is that junior debts may be more valuable than senior ones.
is due to the probability that no sufficient assets would be available to repay the senior debt principal (inducing the second and third terms in Equations (19) and (21)) and the junior debt principal after paying the senior one (inducing all terms but the first one in Equations (20) and (22)).
The latter is the relative proportion of junior debt defined by [omega] = [P.
The existence of senior and junior debt has also been attributed to covenants that prohibit firms from issuing further senior debt.
The valuation of senior and junior debt has been investigated by Black and Cox (1976) and Geske (1977).
Our model predicts that low leverage firms rely more on junior debt than do more indebted firms.
Finally, we contribute to the literature by determining the default probabilities for senior and junior debt and by analyzing the ensuing senior and junior credit spreads.
Ratings agency, Moody's Investors Service, has announced that it is reviewing the subordinated and junior debts of 87 European banks for a possible downgrade.

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