subordinated debt


subordinated debt
Debt that is unsecured and/or ranks for interest and repayment after the senior debt of a company. Subordinated debt may rank below senior debt in the following ways:
• Repayment of principal. The more senior the debt, the earlier it will be due to be repaid. Thus in a typical European leveraged financing, the senior debt will have repayment dates of between 7-9 years; second lien debt may be repayable after 9 1/2 years, and mezzanine debt after 10 years.
• Interest margins. The more junior the debt, the higher the rate of return. Thus, while senior debt may earn margins of between 225-325 basis points , second lien debt typically earns margins of between 400-600 basis points, and mezzanine debt earns margins of between 800-1000 basis points.
• Security. Senior, second lien and mezzanine debt will typically share the same security package (normally held by a security trustee ), which means that the security granted by the borrower and any other obligors will be granted in favour of all the lenders under each of those instruments of debt. However, the intercreditor agreement between the lenders will provide that senior debt will be repaid first from the proceeds of any enforcement of security, followed by second lien debt, followed by mezzanine debt. High yield debt is typically unsecured (although it may benefit from guarantees).
• Intercreditor terms. Terms in an intercreditor agreement (or any other financing agreement) by which one creditor (or group of creditors) agrees to subordinate itself in any way to another creditor (or group of creditors) are all examples of what is termed "contractual subordination". In this respect, the typical terms of second lien debt are likely to look similar to those of mezzanine debt. For example, it is common to see "payment blockages" (whereby senior lenders can prevent payments of junior debt - such as an interest payment which may be due - following a payment default under the senior debt) and "standstill periods" (whereby senior lenders can prevent junior lenders accelerating their debt for a specified period of time following a default under those loans).
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+ subordinated debt
USA
Also known as subordinated notes. junior debt that ranks behind senior debt and is repayable in bankruptcy proceedings after other senior debt has been paid.
Related terms
+ subordinated debt
finance provided by the equity funders, who are also known as the junior lenders.
Also known as junior debt.

Practical Law Dictionary. Glossary of UK, US and international legal terms. . 2010.

Look at other dictionaries:

  • Subordinated debt — Debt over which senior debt takes priority. In the event of bankruptcy, subordinated debtholders receive payment only after senior debt claims are paid in full. The New York Times Financial Glossary * * * subordinated debt subordinated debt ➔… …   Financial and business terms

  • subordinated debt — debt over which senior debt takes priority. In the event of bankruptcy, subordinated debtholders receive payment only after senior debt claims are paid in full. Bloomberg Financial Dictionary * * * subordinated debt subordinated debt ➔ debt * * * …   Financial and business terms

  • subordinated debt — Same as ↑mezzanine finance (see under ↑mezzanine) • • • Main Entry: ↑subordinate …   Useful english dictionary

  • Subordinated debt — In finance, subordinated debt (also known as subordinated loan, subordinated bond, subordinated debenture or junior debt) is debt which ranks after other debts should a company fall into receivership or be closed.Such debt is referred to as… …   Wikipedia

  • 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 . In the case of default, creditors with subordinated debt wouldn t get paid out… …   Investment dictionary

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  • Subordinated Debt — (субординированный долг) долговое обязательство, которое является «младшим» по отношению к другому обязательству. Выплаты (как текущие, так и просроченные) по субординированному долгу обычно происходят после выплат держателям «старшего» долга …   Ипотека. Словарь терминов

  • subordinated notes — USA Also known as subordinated debt. Junior debt that ranks behind senior debt and is repayable in bankruptcy proceedings after other senior debt has been paid. Related terms mezzanine debt Practical Law Dictionary. Gloss …   Law dictionary

  • Debt restructuring — is a process that allows a private or public company – or a sovereign entity – facing cash flow problems and financial distress, to reduce and renegotiate its delinquent debts in order to improve or restore liquidity and rehabilitate so that it… …   Wikipedia


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