Subordinated
Corporate Credit Analysis glossary · Capital Structure & Debt Mechanics
Definition
Debt ranking below senior debt contractually. Recovers only after senior claims are paid in full; typically receives lower coupons-to-recovery profile and is rated below the senior rating by 2-3 notches.
Subordinated in plain English
"Subordinated" debt is money owed that has agreed, in writing, to be paid back only after other "senior" debt is fully repaid. If the company goes bust and there isn't enough cash for everyone, senior lenders get made whole first, and subordinated lenders only get whatever (if anything) is left. Because that's a riskier spot to be in, this debt is graded lower by rating agencies and — to make it worth the gamble — often pays a higher interest rate. It's like being last in line at a refund window: you agreed to it, so you accept you might walk away with less.
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