Friends,
Here is an article I came across on DealBreaker.
http://dealbreaker.com/2012/06/and-now-spanish-cd…
I am not sure I understand the meaning of the following statement - specifically the parts in []
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In some ways this is weird – Spain is [ financing a subordinated investment in the financial sector of its economy with a senior lien on all of its economy ], and [ subordinated bailouts could both create more flexibility and give Europe upside in any recovery ] – but in other ways, this is the way the world works.
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I am sure this is about knowing the terminology but ...
Can someone help ?
Subordinated investments are the last to be redeemed in the event of financial distress or bankruptcy, and thus pay a higher interest rate for the increased risk. A senior lien, though, means that the official creditors (Spanish government, IMF) will have 'first dibs' on the Spanish economy as its collateral in the event the banks become insolvent after it bails them out. That's what the terminology means--as for whatever the author was trying to get across, I really am not sure. I believe the loan is going to be similar in nature to an IMF loan, which has seniority over most/all other creditors. The big issue will be how much of the bullet the government wants private creditors to bite wihtout Greek like rebellion.
Hope that helps man.
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