Subordinated Debt

AAA

DEFINITION of 'Subordinated Debt'

A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings.

Also known as a "junior security" or "subordinated loan."

INVESTOPEDIA EXPLAINS 'Subordinated Debt'

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

VIDEO

Loading the player...
RELATED TERMS
  1. Subordinate Financing

    Debt financing that is ranked behind that held by secured lenders ...
  2. Subordination Agreement

    A legal agreement which establishes one debt as ranking behind ...
  3. Senior Issue

    An issue of bonds, preferred stock or other securities that represents ...
  4. Absolute Priority

    A rule that stipulates the order of payment - creditors before ...
  5. Junior Security

    A security that ranks lower than other securities in regards ...
  6. Coterminous

    A suppplemental loan with a maturity that is the same as the ...
RELATED FAQS
  1. What are the primary advantages of using mezzanine financing?

    Small and mid-sized businesses that have an established track record with profitable operations have several options when ... Read Full Answer >>
  2. What are the primary disadvantages of using mezzanine financing?

    For small established businesses, the ability to acquire affordable capital to fund rapid growth and expansion is an ongoing ... Read Full Answer >>
  3. Which securities are considered investment grade?

    In finance, government and private fixed income securities, such as bonds and notes, are considered investment grade if they ... Read Full Answer >>
  4. When should a company consider issuing a corporate bond vs. issuing stock?

    A company should consider issuing a corporate bond versus issuing stock after it has already exhausted all internal forms ... Read Full Answer >>
  5. How is a corporate bond taxed?

    A corporate bond is taxed through the interest earned on the bond, through capital gains or losses earned in the early sale ... Read Full Answer >>
  6. How do I use the principles of convexity to compare bonds?

    Convexity, along with another principle known as duration, is an important consideration when assessing bond risk. All else ... Read Full Answer >>
Related Articles
  1. Economics

    Understanding Subordinated Debt

    A loan or security that ranks below other loans or securities with regard to claims on assets or earnings.
  2. Investing Basics

    What Is A Corporate Credit Rating?

    Is the bond you're buying investment grade, or just junk? Find out how to check the score.
  3. Options & Futures

    Common Bond-Buying Mistakes

    Avoid these errors made daily in bond portfolios everywhere.
  4. Bonds & Fixed Income

    An Overview Of Corporate Bankruptcy

    If a company files for bankruptcy, stockholders have the most to lose. Find out why.
  5. Investing

    Will Shale Oil Companies Go Bankrupt?

    An overview of shale oil companies and the threats they face in the aftermath of the decline in crude oil prices.
  6. Bonds & Fixed Income

    How Are Zero-Coupon Municipal Bonds Taxed?

    What every investor needs to know about taxes and zero-coupon muni bonds.
  7. Bonds & Fixed Income

    Muni Bonds, Taxable Bonds or CDs: Which is Best?

    Here's how to tell if municipal bonds are a better investment than taxable bonds or CDs.
  8. Professionals

    Why You Should Avoid Fixating on Bond Duration

    Financial advisors and their clients should then focus on a bond fund’s portfolio rather than relying on any single metric like duration.
  9. Investing

    The Case For Stocks Today

    Last week, U.S. equities advanced with the S&P 500 Index notching new records. Investors are now getting nervous with rate and currency volatility spiking.
  10. Mutual Funds & ETFs

    Why You May Want To Be (And Stay) In Bonds

    Bonds are complicated, and it’s easy to feel intimidated or confused. Fortunately, you don’t need to be a numbers geek to be an informed investor.

You May Also Like

Hot Definitions
  1. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  2. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  5. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center