Second lien loan

The vast majority of all second lien loans are senior secured obligations of the borrower.

Secured lenders will routinely require an intercreditor agreement to protect their interests before allowing a borrower to obtain a second lien loan.

Unlike unsecured debt, second lien loans receive a pledge of specific assets of the borrower (e.g., buildings, land, equipment, intellectual property, receivables and other financial assets).

Second lien loans are used in leveraged buyouts to fill small gaps between the financing needs of the borrower and maximum thresholds (measured by various leverage metrics) of senior secured lenders.

The arrangement fee and interest (finance) of a second lien loan are higher than those of the first lien secured loan of the same borrower because of increased risk for the lender that comes from a subordinated security interest.