Perpetual subordinated debt is

subordinated debt In finance, subordinated debt (also known as subordinated loan, subordinated bond, subordinated debenture or junior debt) is debt which ranks after other debts if a company falls into liquidation or bankruptcy. Such debt is referred to as 'subord ...

in the form of a bond with no

maturity date Maturity or immaturity may refer to: * Adulthood or age of majority * Maturity model ** Capability Maturity Model, in software engineering, a model representing the degree of formality and optimization of processes in an organization * Developme ...

for the return of principal. Such a

perpetual bond A perpetual bond, also known colloquially as a perpetual or perp, is a bond with no maturity date, therefore allowing it to be treated as equity, not as debt. Issuers pay coupons on perpetual bonds forever, and they do not have to redeem the pri ...

means it never needs to be redeemed by the issuer, and thus pay coupon interest continually until bought back (hence, "perpetual"). Like other subordinated debt, it has claims after senior debt (hence "subordinated") in the event of default. Perpetual subordinated debt is not "straight debt", rather it is close to, or in some cases identical to, preferred shares, paying a fixed-rate coupon similar to preferred shares' fixed-rate dividend. Perpetual debt comes in two types: cumulative and noncumulative. Interest on cumulative perpetual debt accrues if payments are missed. For noncumulative perpetual debt, if payments are missed, they do not accrue and the

cash flow Cash flow, in general, refers to payments made into or out of a business, project, or financial product. It can also refer more specifically to a real or virtual movement of money. *Cash flow, in its narrow sense, is a payment (in a currency), es ...

is lost.Dictionary of Finance and Investment Terms, p. 529 Noncumulative perpetual debt is almost identical to typical preferred shares (most of which are noncumulative), the only difference being that preferred shares often have the option of conversion to common shares, while perpetual debt generally does not. Because noncumulative perpetual debt can be counted as Tier 2 capital (supplementary capital), it is generally issued by banks as a way to maintain

capital requirement A capital requirement (also known as regulatory capital, capital adequacy or capital base) is the amount of capital a bank or other financial institution has to have as required by its financial regulator. This is usually expressed as a capital ...

s (i.e.

capital adequacy ratio Capital Adequacy Ratio (CAR) also known as Capital to Risk (Weighted) Assets Ratio (CRAR), is the ratio of a bank's capital to its risk. National regulators track a bank's CAR to ensure that it can absorb a reasonable amount of loss and complies ...

or CAR). The debt is generally callable by the issuer at some point. The first yuan-denominated perpetual subordinated bond was issued by Ananda Development PCL in 2013 in the dim sum bond market.

References

{{Reflist Dictionary of Finance and Investment Terms, by John Downes and Jordan Elliot Goodman, published by Barron's Corporate finance Debt