Second lien loan

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A Second Lien Loan is a simple loan with a subordinated security (finance) structure or no security at all (unsecured debt), meaning that the borrower grants another provider of a finance instrument (eg. senior loan) priority over settlement of owed monies in case of an event of default.

[edit] Leveraged buy-outs

Second Lien Loans are used in leveraged buy-outs to fill small gaps between financing needs of the borrower and maximum thresholds (measured by eg. leverage) of senior loan and mezzanine loan or PIK loan providers. The arrangement fee and interest (finance) of a second lien loan are higher than those of the senior loan of the same borrower because of increased risk for the lender. Although increasingly popular, second lien loans can jeopardize availability or pricing of even more subordinated instruments as their providers prefer security only lower-ranking to one instrument.

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