Unsubordinated debt is a fundamental but often misunderstood pillar of the Australian finance world. With regulatory changes and shifting market dynamics in 2025, understanding how unsubordinated debt works—and its impact on both borrowers and investors—has never been more important. Whether you’re running a business, considering a bond investment, or just keen to decode the jargon, this deep dive will bring unsubordinated debt into sharp focus.
What Is Unsubordinated Debt? A 2025 Perspective
In simple terms, unsubordinated debt refers to loans or bonds that take priority over subordinated (or junior) debt in the event of a company’s liquidation. If a business faces insolvency, holders of unsubordinated debt are paid before those with subordinated claims. This makes unsubordinated debt less risky—and typically less expensive for borrowers—than subordinated alternatives.
- Common types: Senior unsecured corporate bonds, certain bank loans, and government debt.
- Where it sits in the capital structure: Just below secured debt but above subordinated debt and equity.
For example, if an ASX-listed company issues two bonds—one senior (unsubordinated) and one subordinated—the senior bondholders will be ahead in the queue if the company defaults. This pecking order shapes both the risk profile and the returns investors can expect.
Why Unsubordinated Debt Matters in Australia Right Now
In 2025, unsubordinated debt is front and centre for several reasons:
- Regulatory updates: The Australian Prudential Regulation Authority (APRA) has tightened rules on bank capital requirements, affecting how banks issue senior and subordinated debt. Many banks are now favouring unsubordinated debt to meet new loss-absorbing capacity standards, providing more options for investors.
- Rising interest rates: With the Reserve Bank of Australia (RBA) maintaining a higher cash rate well into 2025, companies are reevaluating their funding strategies. Unsubordinated debt, with its lower risk premium compared to subordinated debt, is increasingly attractive for corporates looking to manage borrowing costs.
- Investor appetite: Super funds and retail investors have shown renewed interest in senior unsecured notes issued by blue-chip companies, thanks to their relatively higher yields (compared to term deposits) and strong repayment priority.
For instance, in March 2025, Westpac issued a $1.2 billion tranche of unsubordinated notes, which were quickly oversubscribed, highlighting robust demand from both institutional and retail investors.
Key Risks and Rewards: Borrowers vs. Investors
For Borrowers:
- Lower cost of capital: Issuing unsubordinated debt is generally cheaper than subordinated debt, making it a popular choice for creditworthy companies.
- Regulatory compliance: New APRA guidelines incentivise banks and large corporates to issue more unsubordinated debt, but also require greater transparency and risk management.
- Market discipline: Investors’ willingness to buy unsubordinated debt signals market confidence in a company’s creditworthiness.
For Investors:
- Higher repayment priority: In a worst-case scenario, unsubordinated debt holders stand a better chance of recovering their capital than subordinated debt holders.
- Attractive yields: While not as high as subordinated debt, yields on unsubordinated notes often outpace government bonds and term deposits.
- Liquidity: Senior unsecured bonds from major issuers are typically more liquid, allowing easier entry and exit for investors.
- Default risk: While lower than subordinated debt, there’s still risk—especially if the issuer’s credit quality declines or economic conditions deteriorate.
As an example, Qantas’ 2025 senior unsecured bond issue was rated BBB+ and offered a yield 1.2% above the government bond rate. The bond traded actively on the ASX, giving investors flexibility and confidence in repayment priority.
How to Assess and Access Unsubordinated Debt in 2025
Whether you’re a company considering an unsubordinated bond issue, or an investor looking for the next opportunity, a few practical steps can help:
- Check credit ratings: Use agencies like S&P, Moody’s, or Fitch to gauge the issuer’s financial health.
- Review the prospectus: Look for details on where the debt sits in the capital structure, repayment terms, and covenants.
- Consider the issuer’s sector: Banks, utilities, and infrastructure companies often issue unsubordinated debt, each with unique risk factors.
- Monitor regulatory changes: 2025 has seen several tweaks to APRA and ASIC guidelines—keep up to date to understand impacts on debt issuance and investor protection.
- Evaluate liquidity: Favour bonds and notes with active secondary markets, especially if you might need to sell before maturity.
Platforms like the ASX and Chi-X make it easier than ever for everyday Australians to access unsubordinated corporate bonds, with minimum investments often starting from $10,000.
The Bottom Line
In a year marked by regulatory reform and higher interest rates, unsubordinated debt stands out as a strategic tool for both borrowers and investors. It offers a blend of security, yield, and flexibility that’s hard to match elsewhere in the fixed income universe. As always, the key is to understand exactly where your investment sits in the capital stack, and to stay on top of the latest market and policy trends.
