type of DEBENTURE in which the provision for "subordination agreement"
in its indenture renders the claim of such subordinated debentures, in
the event of liquidation, dissolution, bankruptcy, or reorganization,
junior to present or future debt, defined as senior thereto.
Such defined senior debt typically includes funds borrowed from
banks, insurance companies, and other financial institutions, as well
as all other forms of notes or other debentures not expressly subordinated.
This results in the subordinated debentures, instead of sharing
ratably with other unsecured claims of general status, becoming part of
the equity base as far as such defined debt, made expressly senior, is
concerned. Thus, it becomes
easier to obtain bank and other loans entitled to such seniority because
of the subordination agreement. Subordinated
debentures have been particularly utilized by finance companies as a financing
medium in recent years.