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.

Merryn

Claim 12 issues of MoneyWeek (plus much more) for just £12!

Let MoneyWeek show you how to profit, whatever the outcome of the upcoming general election.

Start your no-obligation trial today and get up to speed on:

  • The latest shifts in the economy…
  • The ongoing Brexit negotiations…
  • The new tax rules…
  • Trump’s protectionist policies…

Plus lots more.

We’ll show you what it all means for your money.

Plus, the moment you begin your trial, we’ll rush you over THREE free investment reports:

‘How to escape the most hated tax in Britain’: Inheritance tax hits many unsuspecting families. Our report tells how to pass on up to £2m of your money to your family without the taxman getting a look in.

‘How to profit from a Trump presidency’: The election of Donald Trump was a watershed moment for the US economy. This report details the sectors our analysts think will boom from Trump’s premiership, and gives specific investments you can buy to profit.

‘Best shares to watch in 2017’: Includes the transcript from our roundtable panel of investment professionals – and 12 tips they’re currently tipping. The report also analyses key assets, including property, oil and the countries whose stock markets currently offer the most value.