Subordinated debt

When a company, or a bank, wants to borrow it can do so by offering investors a number of different types of tradeable debt, or bonds.

The least risky type of debt is often secured. This means the lender, or bondholder, has first claim over certain assets – say, land – in the event that interest or the original capital is not repaid or the issuer goes bust. Other lenders will accept less, or perhaps no security, but will expect a higher return, or yield.

Standard bonds usually rank below secured bonds and alongside other commercial creditors (such as trade suppliers) in the event of the bankruptcy of the issuer.

Below them come the holders of subordinated debt. These are lenders willing to accept a high yield in the good times knowing that if something goes wrong they will rank below most other bondholders when it comes to paying them back.

MoneyWeek magazine

Latest issue:

Magazine cover
Bye bye Britain

Why the rich will leave

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.


17 April 1961: America's ill-fated Bay of Pigs invasion begins

On this day in 1961, US troops landed in the Bay of Pigs on the south coast of Cuba in what would become a major embarrassment for America.

The Kids' Portfolio: the four best funds to buy for your children

Investing for your children's long-term future is an excellent idea. But what should you buy? The Kids' Portfolio is a simple collection of four funds intended to be tucked away for 20 to 40 years.