Perpetual Subordinated Loan

AAA

DEFINITION of 'Perpetual Subordinated Loan'

A type of junior debt that continues indefinitely and has no maturity date. Perpetual subordinated loans pay creditors a steady stream of interest forever. Since the loan is perpetual, the principal is never repaid. The interest rate is based on the borrower's creditworthiness as well as prevailing market interest rates.

INVESTOPEDIA EXPLAINS 'Perpetual Subordinated Loan'

Because perpetual subordinated loans are a type of junior debt, they are relatively risky for the creditor. They are secondary to unsubordinated loans (senior loans), so if the borrower of a perpetual subordinated loan defaults, the creditor won't get repaid until the borrower's unsubordinated loans are repaid. Because of the increased risk associated with subordinated loans, they will have higher interest rates relative to unsubordinated loans. Creditors can use a present value calculation to determine the present value of a future series of perpetual subordinated loan payments.



RELATED TERMS
  1. Perpetual Preferred Stock

    A type of preferred stock that has no maturity date. The issuers ...
  2. Preferred Stock

    A class of ownership in a corporation that has a higher claim ...
  3. Convertible Preferred Stock

    Preferred stock that includes an option for the holder to convert ...
  4. Participating Preferred Stock

    A type of preferred stock that gives the holder the right to ...
  5. Prior Preferred Stock

    A type of preferred stock with a higher claim on assets and dividends ...
  6. Estimated Recovery Value (ERV)

    The projected value of an asset that can be recovered in the ...
RELATED FAQS
  1. What is the difference between preferred stock and common stock?

    Preferred and common stocks are different in two key aspects. First, preferred stockholders have a greater claim to a company's ... Read Full Answer >>
  2. Why do some preferred stocks have a higher yield than common stocks?

    Before we answer this question, let's just take a quick review of what a stock's yield is actually measuring. The yield is ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    A Primer On Preferred Stocks

    Offering both income and relative security, these uncommon shares may work for you.
  2. Bonds & Fixed Income

    Introduction To Convertible Preferred Shares

    These securities offer an answer for investors who want the profit potential of stocks but not the risk.
  3. Fundamental Analysis

    Valuation Of A Preferred Stock

    Determining the value of a preferred stock is important for your portfolio. Learn how it's done.
  4. Professionals

    Is Now the Time for Junk Bonds?

    A bet on high-yield bonds is a bet that the global economy will continue to improve...but not too much.
  5. Investing

    What is Debt Financing?

    When a company needs to pay for something, it can pay with cash, or it may finance the purchase. Financing means that it gets the money from other businesses or sources, in return for obligations. ...
  6. Stock Analysis

    Is Prospect Capital Exposed To Elevated Losses?

    According to a federal government report, the quality of leveraged loans has begun to deteriorate. Prospect Capital specializes in these types of loans.
  7. Stock Analysis

    Why Investors Bailed On Halcon's Stocks

    The unexpected plunge in the oil price over the past few months sent Halcon Resources' stocks down nearly 75%.
  8. Investing

    What does DDP Mean?

    Delivery duty paid (DDP) is a shipping term specifying that the seller is responsible for all costs associated with delivery of the goods to the buyer. It is usually used when goods are exported ...
  9. Insurance

    The Challenging Role Of The Corporate Treasurer

    Corporate treasury management has evolved from an offshoot of accounting to a more specific and strategic career.
  10. Markets

    How To Calculate A Z-Score

    Investors need to know how to detect signs of looming bankruptcy. The Z-score can help.

You May Also Like

Hot Definitions
  1. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  2. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  3. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  4. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  5. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  6. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
Trading Center