Junior Debt

Junior debt, also known as subordinated debt, is an unsecured debt lower in the hierarchy of other debt claims. Provided without any collateral and is often subject to an intercreditor agreement with the senior lender, junior debts carry a higher risk but also pays higher interest than other classes. A junior debt is a loan secured by collateral that are to be paid if a company goes into default—but only after higher-priority debts are settled. With junior debt, the lender’s incentives are very much aligned with the long term interests of the shareholders and management, with it being a less of a priority than senior debts in terms of repayments.