Subordinated Debt

Subordinated debt

Debt over which senior debt takes priority. In the event of bankruptcy, subordinated debtholders receive payment only after senior debt claims are paid in full.

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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.

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Subordinated debt. Subordinated debt generally refers to debt securities that have a secondary or lesser claim to the issuer's assets than more senior debt, should the issuer default on its obligations.

In fact, there are also levels of subordinated debt, with senior subordinated debt having a higher claim to repayment than junior subordinated debt.

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Subordinated Debt

What Does Subordinated Debt Mean?

A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings; sometimes called a junior security or subordinated loan.

Investopedia explains Subordinated Debt

In the case of default, creditors with subordinated debt would not get paid until after the senior debtholders were paid in full. Therefore, subordinated debt is more risky than unsubordinated debt.

Related Terms:
• Bankruptcy
• Bond
• Debt
• Debt Financing
• Preferred Stock