With respect to a series of bonds, a bond or debt security whose class is subordinated to other securities (of the same class) in terms of the right of payment of principal and/ or interest. Junior bond is subordinated to more senior bonds in case of an issuer’s bankruptcy, default or running into a similar event (broadly financial distress that impact ability to meet financial obligations). However, such a bond has has priority over equity (common equity) of the issuer.

In a senior/ subordinated structure, several junior bonds are subordinated to a senior bond. The junior bonds are the subordinated bonds of the structure, which receives the first hit in case of distress- and hence are known as a first loss piece (FL piece/ FLP).