Subordinated Debt
Subordinated debt ranks below senior debt in terms of repayment priority. In the event of a default, subordinated debt holders are paid after senior debt holders, making it riskier for investors. However, because of this higher risk, subordinated debt typically offers higher interest rates or returns. It is often used to finance mergers, acquisitions, or leveraged buyouts in private equity deals.
Key Takeaways
- Ranks below senior debt for repayment priority.
- Offers higher returns due to increased risk.
- Commonly used in private equity and M&A financing.
- Subordinated debt holders are paid after senior debt holders.
