Subordination clause

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Subordination clause

A provision in a bond indenture that restricts the issuer's future borrowing by subordinating future lenders' claims on the firm to those of the existing bondholders.

Subordination Clause

A clause in some contracts for debt stating that in the event of bankruptcy or liquidation, the debt in the contract will take priority over all other debts. This protects the creditor in the event that the debtor defaults. It is most common in mortgages and bonds. See also: Absolute Priority Rule.
References in periodicals archive ?
obtain mortgage subordination agreements, or prepare baseline
Loan terms must contain the following, the legal experts said: The definition of a default and cure requirements in the event of default, a requirement for the borrower to provide notice in the case of government action, money laundering provisions, reporting requirements and subordination agreements.
L Hernault focuses her practice on representing lenders in all aspects of secured and unsecured financing transactions, including drafting and negotiating credit agreements, security documents, letters of credit, subordination agreements, and inter-creditor agreements and negotiating and documenting debt restructuring agreements.
34) The Aerosol Court interpreted the scope of Section 510(a) broadly as permitting the enforcement of subordination agreements (includ-ing delegation of voting rights) so long as such agreements are enforceable under applicable nonbankruptcy law.