DEFINITION
Structural Subordination

"Structural subordination": Risk management. An effective reduction in the ranking of the claim of a lender or other creditor resulting from a combination of: (1) The ownership structure of the borrower, for example in a group of companies; and (2) 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.
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