Jurisdiction(s):
United Kingdom

Key definition

Subordinated debt definition

What does Subordinated debt mean? Subordinated debt is borrowing that, by agreement or corporate structure, is paid only after specified senior liabilities have been satisfied. In practice, it sits lower in the payment waterfall on enforcement or insolvency, so recovers only after senior debt (and often trade creditors and hedging liabilities) are discharged. The term is descriptive rather than statutory, and is used consistently in England & Wales, Scotland, Northern Ireland and Ireland across banking, capital markets and insolvency. Priority is usually achieved by: - contractual subordination, documented in an intercreditor or deed of subordination, with standstill, payment blockage and turnover provisions (including second‑lien/lien subordination); and/or - structural...

English law subordination in debt capital markets: legal, structural and contractual (trust and contingent) frameworks; AT1 and Tier 2 regulatory capital; subordinated instruments in wider financings; securitisation tranching and waterfalls

Published by a LexisNexis Banking & Finance expert

Practice notes

What does this Practice Note cover?

This Practice Note sets out, in broad terms, the overall concept of subordination and addresses:

legal subordination
structural subordination in debt capital markets transactions
contractual subordination in debt capital markets transactions
subordination in debt securities issued for regulatory capital purposes
Subordinated debt securities issued as part of a larger financing structure, and
subordination in securitisations and other asset-backed securities

Meaning of subordination

Subordination describes an arrangement under which a liability or claim only becomes payable after another liability or claim, or a class of liabilities or claims, has been discharged. The obligation that is deferred until another obligation has been settled is called subordinated debt. In some deals, subordinated debt is labelled Junior debt, and in those deals the obligation that is payable ahead of the subordinated debt is typically called Senior debt. Senior debt is regarded as ranking above, and enjoying Priority over, the junior debt. In a complex deal there may well be multiple tranches of indebtedness ranking in descending order of priority from highest to lowest...

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Web page updated on 21/05/2026

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