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GLOSSARYTERMS AS A CREDIT DESK USES THEM

Second lien (second-lien loan)

What is a second-lien loan, and how does it differ from mezzanine?

ONE OF 416 TERMS · FREE · NO SIGNUP

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

A second-lien loan is secured on the same assets as the senior, first-lien debt but ranks behind it, so it recovers from the security only after the first-lien lenders are paid in full. In UK and European deals the two usually share one security package held by a security trustee, and an intercreditor agreement sets the order and makes the second-lien lenders stand still for a period after a default before they may enforce; European documents often subordinate its payments as well. It is priced above first-lien debt and below mezzanine, and in a recovery it usually ranks ahead of mezzanine and unsecured lenders.

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.

// THE FULL PAGE

Second-Lien Loan: a Worked Example →

Same security, second in line, first to lose.

// WHAT IT IS NOT

Mezzanine finance usually ranks behind second-lien debt, is often subordinated in payment as well as security and may carry equity warrants or payment-in-kind interest; second-lien debt shares the senior security package and ranks second on it.

// WORKED IN

// NEXT TO IT

SECURITY AND RANKING

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