Series 26: Subordinated Debt

Subordinated Debt

Subordinated debt is debt that ranks below other debt in its claims on assets or earnings. It is not backed by collateral and is the last kind of debt to be paid back to investors if the firm is forced to liquidate.

From an investor’s standpoint, subordinated loans have higher risks compared to senior debt. To attract outside investors, a subordinated debt agreement must offer significantly higher interest rates. Investors who take on subordinated debt may also be parties who a