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Simple English definitions for legal terms
subordinate debt
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A quick definition of subordinate debt:
Subordinate debt is a type of debt that is considered less important than other types of debt. This means that if a borrower cannot pay all of their debts, the subordinate debt will be paid last. It is like being at the back of the line. Other types of debt, like secured debt or priority debt, will be paid first.A more thorough explanation:
Definition: Subordinate debt is a type of debt that is considered inferior or junior to other types or classes of debt. It means that if the borrower defaults on their payments, the holders of subordinate debt will be paid after the holders of other types of debt.
Example: A company issues bonds to raise money. The bonds are divided into two classes: senior bonds and subordinate bonds. The senior bonds have priority over the subordinate bonds, which means that if the company goes bankrupt, the holders of senior bonds will be paid first, and the holders of subordinate bonds will be paid later, if at all.
This example illustrates how subordinate debt is considered less secure than other types of debt because it has a lower priority in the event of default.