An agreement by one creditor (the subordinated or junior creditor) to be paid by a borrower or issuer only after another creditor (the senior creditor) of the common debtor has been paid. The main purpose of this agreement is, then, to modify the status of creditor priorities (seniority) from that set out by broader principles of law. In general, there are two types of subordination—contractual subordination to all other creditors of a debtor, and a turnover subordination where a junior creditor accepts to turn over to a senior creditor all recoveries from the common debtor in relation to the junior debt until the senior creditor is paid.
Investing
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