Structural subordination: Difference between revisions
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''Risk management''. | ''Risk management''. | ||
An effective reduction in the ranking of the claim of a lender or other creditor resulting from a combination of: | An effective reduction in the ranking of the claim of a lender or other creditor resulting from a combination of: | ||
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. | #The ownership structure of the borrower, for example in a group of companies; and | ||
#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. | 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 == | == See also == | ||
* [[Subordination]] | * [[Subordination]] | ||
[[Category:Financial_risk_management]] | |||
Revision as of 08:29, 20 August 2013
Risk management.
An effective reduction in the ranking of the claim of a lender or other creditor resulting from a combination of:
- The ownership structure of the borrower, for example in a group of companies; and
- 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.
