What is subordinated capital?

Subordinated capital is financing which, unlike paid-in capital and retained earnings, remains in a company for a longer period and serves as a source of capital. This capital resembles equity because it has a long maturity and is usually only repaid after all other creditors have been satisfied. Examples of subordinated capital include subordinated loans, convertible bonds, and mezzanine financing. It is also referred to as 'quasi equity' because of the similarities with equity.

This type of financing is important in situations where a company needs extra capital, but the risks for lenders are higher, meaning a higher interest rate is demanded or the loan is converted into share capital under certain conditions.