Glossary - Subordinated Debt
Subordinated debt refers to a class of debt that ranks below other debts with respect to claims on assets or earnings. In the event of a liquidation, subordinated debt is paid out only after all senior debts have been settled. It is often used as a tool for structured finance and is considered to be more risky than unsubordinated debt, hence offering higher yields to investors.
Also known as
- Junior Debt
- Mezzanine Debt
- Subordinated Loan
- Subordinated Bond
Use cases examples
- Loan Agreement: The Subordinated Debt shall be junior in right of payment to the prior repayment of the Senior Debt as defined herein.
- Bankruptcy Filing: In accordance with the agreed terms, creditors holding Subordinated Debt acknowledged their claims would only be addressed after the fulfillment of all obligations classified as Senior Debt.
Considerations for investors
- Evaluating the risk-return profile of subordinated debt, considering its lower priority in case of liquidation.
- Analyzing the issuer's overall debt structure and ability to service both senior and subordinated debt obligations.
Considerations for founders
- Understanding the impact of subordinated debt on the company's balance sheet and its cash-flow requirements for interest payments.
- Considering the potential dilution of equity in case of conversion features or warrants attached to the subordinated debt.
Get to know our world class tools and services
Transform your operations with world class tools
We have created several tools to help investors spot the best opportunities and manage their portfolio.
Let's unlock your business potential with Automations
Embrace the future with our tailored subscription service that combines strategic planning and practical implementation.