Subordinated loans are loans with low payment priority and unsecured if the company is dissolved or broken down into management. The term “subordination” of subordinated loans is used as a synonym for “priority”, but this means that there are cases where it is not subject to fair treatment with the loans borrowed from other financial institutions. If assets remain after regular payment is made, it will be distributed only at that time. Because of such risks, interest rates are set higher. And because of this nature, subordinated loans are considered part of own funds. The Financial Services Agency plans to set up a DDS (Dead Dead Swap) method that can convert the current loan to a capitalized subordinated loan in order to support small and medium-sized enterprises whose cash flow deteriorates.
DDS (dead · dead swap) method
Dead · dead · swap is also used when developing business improvement plans for M & A. In Japan it has been lifted since around 1990. In the financial crisis and management difficulties after the collapse of the bubble, subordinated loans were used by many financial institutions. Even when public funds were injected into banks, capital injections were carried out in part with subordinated loans. The dead / dead swap method of converting current loans to subordinated loans is different in that it is a dead equity swap that converts debt to equity and borrowings for companies with debt , Subordinated loans can postpone payment so that they can have grace at repayment deadline. Meanwhile, there is an advantage that M & A business plan etc. can be made, and it can move for business revitalization. Moreover, as seen from other financial institutions, it can be judged as the capital of the company, so it will be the “source of funds” in corporate finance. As for the conversion to subordinated loans, financial institutions are still reluctant. However, if the FSA’s review of the basic policies on the dead / dead swap is carried out, financial institutions will be required to respond quickly.