Subordinated Debt
Subordinated debt is a loan or security that ranks behind senior debt in a company's repayment order; in bankruptcy, subordinated creditors are paid only after senior creditors but before most equity.
Example: A company issues $200 million of senior debt and $50 million of subordinated debt as part of its capital structure; in a distress scenario, proceeds from asset sales would first cover the senior debt, with any remaining funds potentially paying subordinated notes.
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