Subordinated financing (junior debt) is a loan secured by collateral (assets) that are to be paid if a company goes into default—but only after higher-priority debts (senior debts) are settled. All debts are to be settled through the sale of the company’s assets.
Because subordinated debts have lower priority for repayment, they carry greater risk for the lender. As a result, the interest rates and repayment terms are less favourable than for senior debts.
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