Subordinated Debt
Loan repaid only after senior debt in bankruptcy.
Real World
During Lehman Brothers' 2008 collapse, holders of subordinated debt received little to nothing after secured creditors were paid, illustrating why lenders demand higher interest rates for taking on this extra risk.
Exam Focus
Link the higher risk of subordinated debt directly to its higher interest cost — risk-return trade-off is the core evaluative point examiners reward.
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