Off balance sheet finance and Structural subordination: Difference between pages
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''Risk management''. | |||
An effective reduction in the ranking of the claim of a lender or other creditor resulting from a combination of: | |||
(1) The ownership structure of the borrower, for example in a group of companies; and | |||
(2) Holding a claim against the 'wrong' legal entity. | |||
For example, the claims of the creditors of a holding company may become structurally subordinated to the claims of creditors of the subsidiary companies in the same group. This is because the claim of the holding company itself - as a shareholder of the subsidiary - is generally subordinated to the claims of the other creditors of the subsidiary. | |||
This can be particularly problematic where the subsidiary is in a different country from the holding company, where local legal and other claims may effectively erode the position of the holding company's creditors. | |||
== See also == | |||
* [[Subordination]] | |||
Revision as of 14:20, 23 October 2012
Risk management. An effective reduction in the ranking of the claim of a lender or other creditor resulting from a combination of: (1) The ownership structure of the borrower, for example in a group of companies; and (2) Holding a claim against the 'wrong' legal entity.
For example, the claims of the creditors of a holding company may become structurally subordinated to the claims of creditors of the subsidiary companies in the same group. This is because the claim of the holding company itself - as a shareholder of the subsidiary - is generally subordinated to the claims of the other creditors of the subsidiary.
This can be particularly problematic where the subsidiary is in a different country from the holding company, where local legal and other claims may effectively erode the position of the holding company's creditors.
See also
