Subordinated debt or junior debt is considered fairly risky for the lenders because:
A)the subordinated lenders will be paid off only after the speciﬁed creditors including
Ordinary equity holders have been compensated.
B)in the event of a corporate default, it is unlikely that the subordinated bondholders will
Receive any of their money back.
C)the issuing company is willing to secure the subordinated debt with all of their assets.
D)All of the above.
E)None of the above.

Question

Quizplus · Accepted Answer

Subordinated debt is considered risky because, in the event of a corporate default, these lenders are lower in the repayment hierarchy, making it less likely they will recover their investment. Contrary to option A, ordinary equity holders are paid after all creditors, including subordinated debt holders. Option C is incorrect because subordinated debt is typically unsecured or has a lower priority on assets than senior debt.

Subordinated Debt or Junior Debt Is Considered Fairly Risky for the Lenders