What is subordinated ? How do you distinguish subordinated debt from subordinated debt?

Subordinated Debt What is Subordinated Debt?

The so-called subordinated debt refers to the long-term debt of a commercial bank with a fixed term of not less than 5 years (including 5 years), unless the bank fails or liquidates, and is not used to cover the bank's daily operating losses, and the claim of this debt ranks after deposits and other liabilities. Subordinated debt is capitalized on the condition that it must not be guaranteed by a bank or a third party and must not exceed 50% of the core capital of a commercial bank.

Within 5 years before the maturity of the subordinated term debt, the commercial bank shall convert the subordinated term debt into the balance sheet under the item of "subordinated term debt" in the following proportions: if the remaining maturity is more than 4 years (including 4 years), it shall be counted as 100%; If the remaining term is 3-4 years, 80%; If the remaining term is 2-3 years, 60% will be counted; If the remaining term is 1-2 years, it will be counted as 40%; If the remaining term is less than 1 year, 20% will be counted.

The procedure for the issuance of subordinated debt is that commercial banks can decide whether to issue subordinated term debt as subsidiary capital according to their own circumstances. Commercial banks issuing subordinated term debts must apply to the CBRC and submit the feasibility analysis report, prospectus, agreement text and other required materials. The method of fundraising is targeted by the bank to the target creditors.

In December 2003, the China Banking Regulatory Commission (CBRC) issued the Notice on Included Subordinated Term Debt in Subsidiary Capital, deciding to supplement the capital composition of China's commercial banks and include subordinated term debt that meets the prescribed conditions in the subsidiary capital of banks. As a result, commercial banks are expected to broaden their capital raising channels and increase their capital strength through the issuance of subordinated term debts, which will help alleviate the situation of China's commercial banks with congenital capital shortage and single capital replenishment channels.

Compared with the convertible bonds that listed banks like to issue in the early stage, the latter is equity financing, while the former is debt financing. Subordinated debt will not be converted into ** at maturity, that is, it will not be financed through the ** market, but will raise funds from institutional investors to supplement the bank's capital. For banks, there is no risk in issuing convertible bonds, and they will be converted into ** after maturity, without repaying the principal, and will increase the net assets per share; However, there is pressure to repay principal and interest when subordinated debt matures, and net assets will not increase, so banks must consider the pressure of repayment of principal and interest through subordinated debt financing, so as to enhance their own profitability.

On the contrary, for investors, the risk of buying convertible bonds is of course much greater than that of subordinated bonds, which are mainly aimed at institutional investors and have little impact on investors in the secondary market.

Market participants believe that the CBRC's move is the most substantial positive for the banking industry in recent times, which can supplement the lack of capital of banks and alleviate the current situation of banks blindly reaching out to investors in the secondary market. In the second half of 2003, bank stocks were subjected to a huge sell-off in the market due to frequent refinancing plans. The issuance of subordinated bonds can alleviate the contradiction between banks and the secondary market.

Subordinated debt is a subordinated debt mortgage.

A financial product in the United States, which is equivalent to a home remortgage loan.

The order of priority of claims is: general debt subordinated debt preferred stock common stock, the higher the priority of the claim, the lower the risk and the lower the expected return, and vice versa. Institutions often allocate assets according to a certain proportion according to the CAPM model based on their own circumstances to balance their own risks and returns.

In particular, Pan Da would like to point out that the "subordinated" in subordinated debt is a completely different concept from the "subordinated loan" in the five-level classification of bank loans (normal, concern, subordinated, doubtful, and loss). The "subordinated" in a subordinated bond only refers to the "subordinated" of its claim, and does not mean that its credit rating is necessarily "subordinated"; The "subordinated" in the five-level classification is classified as non-performing loans along with "doubtful" and "loss".

Subprime Loans Lenders first review the creditworthiness of the applicant before making a loan, and only applicants who meet the requirements will be able to get the loan. But many people with no credit history, or a poor credit history (such as a history of default or default), also have the need to borrow, and subprime mortgages are designed to meet this need. The so-called subordination refers to the interest rate of the loan, not to the subordinate, the meaning of the inferior, the inferior.

Subprime mortgages have higher interest rates than regular mortgages to compensate for the greater risk of default that lenders are exposing themselves to.

Subordinated debt refers to the bonds issued by commercial banks, the repayment of principal and interest is listed in the order of repayment of commercial banks and other liabilities, and precedes the equity capital of commercial banks, which belong to the subsidiary capital of banks.

Subordinated bonds are issued in the inter-bank bond market, and the scope of investors is all investors in the inter-bank bond market, after the issuance, after the approval of the central bank, it can be traded in the inter-bank bond market, which is characterized by simple issuance procedures and short cycles, if investors judge that the entire business environment is good, and the demand for corporate and personal loans is strong, the subordinated bonds are a good supplement to the bond market, however, the risk and interest rate cost of subordinated bonds are generally higher than other bonds issued by banks.

In banking terms, it is generally used to indicate the order in which debts are repaid.

Subordinated debt is a special form of debt that has a higher repayment order than a company's equity but a lower than a company's general debt. relative to creditors, i.e., subordinated claims; Relative to the debtor, it is a subordinated debt.

1. The difference between subordinated debt and subordinated bonds is that subordinated debt refers to the long-term debt of a commercial bank with a fixed term of not less than 5 years, unless the bank fails or liquidates and is not used to make up for the bank's daily operating losses, and the claim for the debt is ranked after deposits and other liabilities; Subordinated debt is a form of debt that is repaid in a higher order than the company's equity but lower than the company's general debt.

2. [Legal basis].

3. According to Article 3 of the Administrative Measures for the Issuance and Trading of Corporate Bonds, corporate bonds can be issued to the public or non-publicly.

1. The distinction between subordinated debt and subordinated bonds is that subordinated debt refers to the long-term debt of a commercial bank with a fixed term of not less than 5 years, unless the bank fails or liquidates, and is not used to make up for the bank's daily operating losses, and the claim for the debt is ranked after deposits and other liabilities; Subordinated debt is a form of debt that is repaid in a higher order than the company's equity but lower than the company's general debt.

2. [Legal basis].

3. According to Article 3 of the Administrative Measures for the Issuance and Trading of Corporate Bonds, corporate bonds can be issued to the public or dissolved by non-public auctions.