Advantages and disadvantages of subordinated debt
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In what sense is subordinated debt advantageous to senior debtholders, and in what sense is it disadvantageous to them?
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This solution discusses the advantages and disadvantages of subordinated debt.
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Subordinated debt is basically debt that is placed the lowest on claims to assets. If the company were forced into bankruptcy or had to liquidate voluntarily, those holding subordinated debt would be paid last, which makes this the riskiest form of debt. The main advantage to subordinated debt is that it allows the company a way to raise additional capital after all lines of credit and other resources have been exhausted. This is ...
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