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What is unsubordinated debt?

Unsubordinated debt

If a company is insolvent or bankrupt and owes money to a number of creditors, the holders of the unsubordinated debt have the first claim on the company's assets and earnings. Also called a senior security, it's essentially a debt that's ranked above other debts.

Where have you heard about unsubordinated debt?

In the financial press, when companies issue bonds to raise capital to invest in new projects, maintain existing operations, or even refinance existing debts that are maturing. The buyers of unsubordinated bonds become creditors of the issuing company and will be at the top of the repayment hierarchy if the company goes bankrupt.

What you need to know about unsubordinated debt.

Unsubordinated debt carries less risk than subordinated debt because of its higher position in the ranking of creditors. On the other hand, because unsubordinated debt is less risky, it normally has lower returns than lower-ranking loans or securities.

The 2008 collapse of Lehman Brothers investment bank saw unsubordinated-debt holders paid out in full, followed by those holding subordinated debt. Other insolvencies have not resulted in the same high level of financial recovery on behalf of all creditors, thus the advantages of holding unsubordinated debt become more obvious. A case in point would be the 2017 wipe-out of subordinated debt holders in troubled Spanish institution Banco Popular.

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