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Subordinated seniority

Bonds of subordinated seniority, or subordinated bonds, or junior bonds, are serviced only after all other senior debt (i.e. debt that is not subordinated or junior such as loans and senior bonds) has been serviced. In the event of the liquidation of an issuer (e.g. in a bankruptcy), all senior debt is redeemed first. Only then does the liquidator ascertain whether and how much the holders of the subordinated bond receive. Due to this risk of capital loss, the coupon of subordinated bonds is higher than that of senior bonds.