Second lien
Capital MarketsDebt secured on the same collateral as the senior loans but ranking behind them in enforcement and repayment.
A second lien lender shares the security package with the first lien but stands behind it. If the collateral is enforced, the first lien is paid in full before the second lien receives anything.
It is compensated with a materially higher margin, often several hundred basis points above the first lien, and it fills the gap between what senior lenders will provide and what the sponsor is willing to fund with equity.
The relationship is governed by an intercreditor agreement, which is where the real terms live: how long the second lien must wait before enforcing, whether it can block a restructuring, and what happens to its claim in an insolvency.
Because it is often the layer where value runs out, second lien holders are frequently the fulcrum in a restructuring and end up owning the reorganised equity.