Liabilities which, in the event of liquidation or insolvency of the issuer (the debtor), are treated as subordinated to the claims of other stakeholders such as depositors and other creditors of the issuer, as to an issuer’s assets or earnings.
At the time of repayment or settlement, senior debt (including liens secured by collateral) has first claim as compared to subordinated liabilities/ debt. In the event of bankruptcy, subordinated liabilities are settled after senior debt but before common equity. For lenders, subordinated liabilities are by nature riskier than secured debt, and therefore the interest rates on these debts is typically high.
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