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This pathway will walk us through the basics of banks, starting with some of the different types and their main functions, then starting to look at the regulation faced by the banks, both before and after the Global Financial Crisis.

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Greenwashing is the act of distributing false information about something being more environmentally friendly than it actually is.

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Banking Essentials - Part I

This pathway will walk us through the basics of banks, starting with some of the different types and their main functions, then starting to look at the regulation faced by the banks, both before and after the Global Financial Crisis.

Greenwashing

Greenwashing is the act of distributing false information about something being more environmentally friendly than it actually is.

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Connect Finance Unlocked to your current platform

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Tackling the Cost of Living Crisis

In this video, Max discusses the cost-of-living crisis currently enveloping the UK. He examines its impact on households as well as the overall economy.

CSR and Sustainability in Financial Services

In the first video of this two-part video series, Elisa introduces us to sustainability. She begins by looking at the difference between sustainability and corporate social responsibility, two terms that can be easily confused.

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What is Subordinated Debt?

What is Subordinated Debt?

Tim Skeet

35 years: Debt capital markets

As the name suggests, junior or subordinated debt holders contractually stand below all forms of senior debt. In this short video, Tim explains the risks associated with investing in subordinated debt and the reasons why borrowers issue this type of debt.

As the name suggests, junior or subordinated debt holders contractually stand below all forms of senior debt. In this short video, Tim explains the risks associated with investing in subordinated debt and the reasons why borrowers issue this type of debt.

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What is Subordinated Debt?

1 min 49 secs

Key learning objectives:

  • Define subordinated debt

  • Learn the risk factor of subordinated debt for investors

  • Understand why investors buy subordinated debt

  • Explain senior subordinated debt

  • Identify the benefits of issuing subordinated debt over equity

Overview:

Subordinated debt, sometimes called junior debt, is a layer of debt that is contractually subordinated to all forms of senior debt.

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Summary

What is subordinated debt?

Subordinated debt, sometimes called junior debt, is a layer of debt that is contractually subordinated to all forms of senior debt.

Why is subordinated debt risky for investors?

Junior or subordinated debt holders contractually stand below all forms of senior debt - but above shareholders - in the repayment queue. Subordinated creditors may not receive anything back in liquidation, so stand to be wiped out or receive just a fraction of their money back.

Why do investors buy subordinated debt?

Returns to investors for holding subordinated debt are higher than returns they receive on senior debt, as borrowers compensate investors for the additional risk they have taken on relative to senior debt.

What is senior subordinated debt?

Some companies’ subordinated credit lines contain specific contractual clauses (carve-outs) that rank them above the normal subordinated credit outstanding. This is referred to as senior subordinated debt. It is still subordinated as it ranks below senior unsecured debt.

What are the benefits of issuing subordinated debt over equity?

Junior debt can be relatively expensive for borrowers to issue, but debt is cheaper to issue than equity. Companies benefit from issuing debt since interest payments are tax-deductible whereas dividend payments to shareholders are not.

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Tim Skeet

Tim Skeet

Banker with more than 35 years experience in the financial markets. Tim has been an ICMA board member and an ECBC steering committee member. Tim is a Freeman of the City of London.

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