Back to Strategies
🏦

Subordinated Debt / Tier 2 Capital

Inject subordinated debt into banks to strengthen capital ratios. Higher yield for higher risk.

Capital Optimization
Complexity
Intermediate
Deal Size
$25M - $500M
Typical Tenor
7-10 years
Scalability
Low
#capital#bank#subordinated#tier-2#development
Mini Map

Flow Types

Cash
Guarantee
Interest
Principal

Transaction Timeline

Phase 1: Structuring & Approval(2-6 months)

Instrument structured, regulatory approval obtained.

Use Cases

  • •Strengthen bank regulatory capital ratios
  • •Enable bank balance sheet growth
  • •Support smaller/regional banks lacking market access
  • •Development mandate capital support

Problem Solved

Banks get capital relief to expand lending without diluting equity shareholders.

Revenue Calculator

Model deal economics

$100M
$25M$500M
350 bps
5 bps200 bps
10 bps
75 bps

Projected Revenue

Gross Carry Income$1,750,000
Funding Cost($50,000)
Net Carry$1,700,000
Upfront Fees$750,000
Total Revenue$2,450,000
Annualized Return
490.0 bps
If Repeated Annually
$4,900,000

Revenue Sources

Carry Income

Subordination Premium200-500 bps

Higher yield due to subordinated position

Annual

Fee Income

Structuring FeeOne-time
50-100 bps

One-time fee for structuring compliant instrument

Regulatory Checkpoints

Related Party RulesLocal Banking Regs

If DFI is government-linked, related party limits may apply.

Risk Flags

Credit RiskHigh

Bank default leads to loss (junior to depositors/seniors).

Mitigation:Credit analysis, covenants, monitoring.
Extension RiskMedium

Bank may not call debt if in distress.

Mitigation:Step-up coupons, call provisions.
ConcentrationHigh

Large single exposure to one bank.

Mitigation:Exposure limits, portfolio diversification.