BANKING AFFAIRS

Detailed explanation-1: -Subordinated debt (also known as a subordinated debenture) is an unsecured loan or bond that ranks below other, more senior loans or securities with respect to claims on assets or earnings.

Detailed explanation-2: -Subordinated debt is stated on the issuer’s balance sheet as a long-term debt if it is payable in more than one year (which is likely to be the case). If it is payable sooner, then it is listed within the current liabilities section of the balance sheet.

Detailed explanation-3: -Types of subordinated debt include high yield bonds, mezzanine with and without warrants, Payment in Kind (PIK) notes, and vendor notes, ordering from the highest to the lowest priorities, respectively. Another way to express the different priorities of securities is with a subordination scale.

Detailed explanation-4: -Subordinated debt is an unsecured borrowing. If the issuing bank were liquidated, its subordinated debt would be paid only after its other debt obligations (including deposit obligations) are paid in full but before any payment to its stockholders.

Detailed explanation-5: -Junior debt is synonymous with subordinated debt, and it may refer more generally to any second tier of debt paid immediately following the repayment of senior debt. Junior debt has a somewhat smaller probability of being paid back in default since all higher-ranking debt will be given priority.