Structural Subordination (Banking & Finance Glossary)

Summary

A concept where a Lender to a company does not have access to the company’s subsidiary (in other words, the subsidiary has not guaranteed the debt) until such subsidiary’s creditors have been paid off. This effectively subordinates such Lender to any creditors of the subsidiary. For example, if a Lender loans funds to a Holding Company and such debt is not guaranteed by the Holding Company’s subsidiary operating company, that Lender is structurally subordinated to the subsidiary operating company’s creditors (this is because in a bankruptcy of the operating subsidiary its creditors are paid in full before the Holding Company receives any assets as a dividend).