Subordinated debenture

A subordinated debenture is a bond classified lower than more senior debt in the event of a default. This means that the holders of more senior securities are paid first, before any residual funds are made available to the holder of the subordinated debenture. Given the higher risk of nonpayment, this security pays out a relatively high interest rate.

Similar Terms

A subordinated debenture is also known as a junior security.