In the event the issuer goes bankrupt, senior debt theoretically must be repaid before other creditors receive any payment.
[1] Senior debt is often secured by collateral on which the lender has put in place a first lien.
[citation needed] Senior lenders are theoretically (and usually) in the best position because they have first claim to unsecured assets.
[2] By doing this, the Federal Deposit Insurance Corporation (FDIC) effectively subordinated the unsecured senior debt to depositors, thereby fully protecting depositors while also eliminating any potential deposit insurance liability to the FDIC itself.
In this and similar cases, specific regulatory and oversight powers can lead to senior lenders being subordinated in potentially unexpected ways.