Balance Sheet account. A long term liability (payable after twelve months from the Balance Sheet date) payable to a class of creditors whose rights are junior to some other class or classes of creditors of a business.
Debt with inferior liquidation privileges to senior debt in case of a bankruptcy; sub debt will carry higher interest rates than senior debt, to which it is subordinated, to compensate for the added risk, and will typically have attached warrants or equity conversion features.
If a company is liquidated (i.e. becomes insolvent ), the secured creditors are paid first. If any money is left, the unsecured creditors are then paid. The amount of money owed to the unsecured creditors is termed the 'subordinated debt' of the company.
In the event of bankruptcy of the borrower, senior debt takes priority over subordinated debt in terms of repayment of the relative debt claims. Français: Dette subordonnée Español: Deuda no prioritaria
Debt over which senior debt takes priority. In the event of bankruptcy, subordinated debt-holders receive payment only after senior debt is paid in full. A subordination of security interest in property allows another creditor to have the rights to the proceeds of the sale of that property before the claim of the subordinated creditor.