Friday 9 December 2016

WHY BE SUBORDINATED?

Published 28/11/2010 | 05:00

Why would someone lend as a subordinated bondholder rather than a senior bondholder?

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The interest bondholders are paid reflects the level of risk they are taking when investing in businesses. Bondholders of blue-chip or AAA-rated businesses get a lower rate of interest than lenders to new companies in high-risk areas like pharmaceuticals, for instance.

Similarly, subordinated bondholders are paid a premium to reflect the greater risk they bear in the event that the company or business in which they invest in fails.

Sunday Independent

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