Subordinated Debt
What It Means
Subordinated Debt refers to loans that hold a lower priority, also known as Liquidation Preference, in the event of a bankruptcy.
Why It’s Important
The lower Liquidation Preference of Subordinated Debt means it will be less likely to get paid back in a severe downside scenario, such as a bankruptcy. This lower preference implies a higher risk for this type of loan compared to Senior Debt. As a result, Subordinated Debt often carries higher interest rates than senior notes.