Glossary definition
Subordination
The arrangement by which one lender agrees that their claim on the borrower's assets ranks behind that of another lender, most commonly where mezzanine debt is subordinated to the senior lender's first charge. Subordination is documented in an intercreditor deed which governs the priority of repayment, enforcement rights, and information sharing between lenders.
Definition
The arrangement by which one lender agrees that their claim on the borrower's assets ranks behind that of another lender, most commonly where mezzanine debt is subordinated to the senior lender's first charge. Subordination is documented in an intercreditor deed which governs the priority of repayment, enforcement rights, and information sharing between lenders. The degree of subordination directly affects the risk profile and pricing of each tranche within the capital stack.
See also
Closely related terms.
Intercreditor Deed
A legal agreement between two or more lenders in the capital stack that defines their respective rights, priorities, and remedies in relation to the same borrower and security.
Mezzanine Finance
A layer of debt that sits between the senior loan and developer equity in the capital stack, secured by a second legal charge on the property.
Senior Debt
The primary layer of debt in a development finance structure, secured by a first legal charge on the property and sitting at the bottom of the capital stack with first priority on repayment.
Capital Stack
The total structure of funding used to finance a development project, arranged by seniority from senior debt at the bottom through mezzanine finance to developer equity at the top.
First Charge
A legal charge registered against a property title that gives the holder (typically the senior lender) first priority over all other creditors in the event of a sale or enforcement.
Further reading
Guides that touch this term.
Guide
The Capital Stack in Property Development: How to Structure Your Funding
A comprehensive guide to understanding and structuring the capital stack in UK property development, from senior debt through mezzanine to equity contributions.
9 min read readReadGuide
Mezzanine Finance vs Joint Venture Equity: How to Choose
Both mezzanine and JV equity reduce the cash you need to invest. But they work very differently and suit different situations. This guide helps you decide which is right for your project.
4 min read readReadGuide
Legal Due Diligence in Development Finance: What Solicitors Check
Legal due diligence is the backbone of every development finance transaction. This guide explains what solicitors investigate, common issues that delay completions, and how to prepare your legal pack.
9 min read readRead
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