Subordination Clause

AAA

DEFINITION of 'Subordination Clause'

A clause in an agreement which states that the current claim on any debts will take priority over any other claims formed in other agreements made in the future. Subordination is the act of yielding priority.

INVESTOPEDIA EXPLAINS 'Subordination Clause'

A subordination clause effectively makes the current claim in the agreement senior to any other agreements that come along after the original agreement. These clauses are most commonly seen in mortgage contracts and bond issue agreements. For example, if a company issues bonds in the market with a subordination clause, it insures that if more bonds are issued in the future the original bondholders will receive payment before the company pays all other debt issued after it. This is added protection for the original bondholders as the likelihood of them getting their investment back is higher with a subordination clause.

RELATED TERMS
  1. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  2. Subordination Agreement

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

    Borrowed money that a company must repay first if it goes out ...
  4. Bond Attorney

    A lawyer who represents the bondholders' interests during a bond ...
  5. Bankruptcy

    A legal proceeding involving a person or business that is unable ...
  6. Interest

    1. The charge for the privilege of borrowing money, typically ...
Related Articles
  1. Will Corporate Debt Drag Your Stock ...
    Investing Basics

    Will Corporate Debt Drag Your Stock ...

  2. An Overview Of Corporate Bankruptcy
    Bonds & Fixed Income

    An Overview Of Corporate Bankruptcy

  3. Bond Basics Tutorial
    Retirement

    Bond Basics Tutorial

  4. What You Need To Know About Preferred ...
    Trading Strategies

    What You Need To Know About Preferred ...

comments powered by Disqus
Hot Definitions
  1. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  2. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  3. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  4. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
  5. Earnings Before Interest After Taxes - EBIAT

    A financial measure that is an indicator of a company's operating performance. EBIAT, which is equivalent to after-tax EBIT ...
  6. Direct Participation Program - DPP

    A business venture designed to let investors participate directly in the cash flow and tax benefits of the underlying investment. ...
Trading Center