What is Subordinated Debt?
How Does Subordinated Debt Work?
Suppose a company issues two bonds: Bond A and Bond B. The company fails and is forced to liquidate its assets to pay off debt. The money owed to Bond A holders is considered the priority debt, so Bond B debt holders be paid off only after all Bond A holders are repaid. Because Bond B was ranked second in priority, it is considered subordinated debt. Bond A debt is considered unsubordinated debt.