Subordination clause


Subordination clause

A provision in a bond indenture that restricts the issuer's future borrowing by subordinating future lenders' claims on the firm to those of the existing bondholders.

Subordination Clause

A clause in some contracts for debt stating that in the event of bankruptcy or liquidation, the debt in the contract will take priority over all other debts. This protects the creditor in the event that the debtor defaults. It is most common in mortgages and bonds. See also: Absolute Priority Rule.