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Subordinated debt

M

Michael

Member
I think I understand what subordinated debt is, but I'm not sure why a company would choose to borrow using subordinated debt.

As I understand it, subordinated debt ranks after other unsecured loans on wind-up of the company. To compensate for this added risk, the company will have to pay higher interest rates on its borrowings. What is the advantage to the company of doing this rather than borrowing using regular unsecured loans?
 
The company may have no other choice, or it could be a condition of extisting loans that any subsequent debt subordinated.
 
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