First-lien leverage
What is first-lien leverage, and how is it different from total leverage?
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BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// THE SHORT ANSWER
First-lien leverage is the debt secured by a first-ranking claim on a borrower's assets divided by EBITDA, leaving out second-lien, subordinated and unsecured debt. A company with US$300m of first-lien debt, US$100m of second-lien debt and EBITDA of US$100m has first-lien leverage of 3.0 times and total leverage of 4.0 times. Lenders at the top of the structure watch the first figure, because it measures how much debt shares their claim on the assets, and covenants in leveraged loans are often written on it.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
// WORKED IN
// NEXT TO IT
- Cash conversion cycle
- Quality of earnings
- Debtor days
- Debt service cover ratio (DSCR)
- Interest cover ratio
- Debt to EBITDA (leverage)
- Dividend payout ratio
- Debt per kgMS
- Fixed charge cover ratio (FCCR)
- Global cash flow
- Adjusted EBITDA
- Creditor days (DPO)
- Inventory days (DIO)
- Maintenance capex
- Gearing
- Tangible net worth
- Downside case
- Breakeven milk price
- Debt-like items
- Operating leverage
- EBITDAR
- Cash conversion (ratio)
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