Subordination

Subordination refers to the act of placing a lower priority or ranking on a particular debt or claim in favor of another debt or claim. In a commercial context, subordination typically occurs when a lender agrees to give up their priority position in the event of default, allowing another lender to take precedence in receiving repayment. This agreement is often made to facilitate additional financing or to provide more security to a higher-ranking lender. Subordination agreements are common in complex financing transactions and can help mitigate risk for all parties involved.