First-Lien Debt
First-lien debt is secured debt that holds the first contractual lien priority over specified collateral, subject to permitted liens, equal-priority obligations and the governing intercreditor and security documents.
First lien describes collateral priority
The label tells the reader where the lender sits in the lien waterfall for specified assets.
It does not by itself determine payment priority on every asset, structural seniority at subsidiaries, or the relative priority of claims outside the collateral package.
Several facilities can share first priority
A first-lien revolver and first-lien term loan can be secured pari passu. In that structure, both are first lien even though the lenders may have different economics.
Intercreditor or collateral-sharing documents determine how proceeds and enforcement rights are coordinated.
First lien can still sit behind other claims
Taxes, certain employee claims, possessory liens, debtor-in-possession financing and other legally or contractually permitted claims can complicate the simple first-lien label.
Recovery analysis therefore requires more than reading the facility title.
First-lien leverage is an important credit measure
Borrowers and lenders often calculate first-lien net leverage separately from total leverage. That ratio measures debt with first-priority collateral claims relative to an earnings measure such as EBITDA.
It can show how much enterprise value or cash flow sits ahead of junior creditors.
First-lien recovery depends on how much first-priority debt shares the collateral
Assume a borrower has a $700 million first-lien term loan and a $200 million first-lien revolver secured pari passu. If the revolver is fully drawn during distress, the collateral does not protect the term loan alone; it supports $900 million of equal-priority claims before considering other permitted liens.
That is why first-lien leverage and total first-priority exposure matter more than the title of one facility.
Investors should also inspect incremental debt capacity. A credit agreement may permit the borrower to add more pari passu first-lien debt if leverage tests or fixed baskets are satisfied. That additional borrowing can dilute expected recovery for existing first-lien lenders without changing their nominal lien ranking.
First priority is valuable, but the size of the class sharing that priority can change materially over time.
Common mistakes
Assuming first lien means only lien Other obligations may share the same priority.
Treating first lien as identical to senior unsecured priority Collateral changes the recovery path.
Ignoring structural seniority Debt at an operating subsidiary can have practical priority over parent-level claims.
Example
A company has a first-lien term loan and a first-lien revolver secured by substantially all assets on an equal-priority basis. Both facilities rank ahead of a second-lien term loan with respect to shared collateral, even though the revolver and term loan may have different maturities and interest rates.
Example
A company has a first-lien term loan and a first-lien revolver secured by substantially all assets on an equal-priority basis. Both facilities rank ahead of a second-lien term loan with respect to shared collateral, even though the revolver and term loan may have different maturities and interest rates.
Professional note
The phrase first lien should trigger an intercreditor review, not end the analysis. Determine which obligations share the first-priority collateral, whether any first-out priority exists, and which assets are excluded from the lien package.
Related terms
- Revolving Credit Facility
A revolving credit facility, or revolver, is a committed lending arrangement that allows a borrower to draw, repay and generally reborrow amounts up to the available commitment during the facility’s term, subject to the credit agreement.
- Senior Secured Debt
Senior secured debt is debt that is senior in the borrower’s contractual capital structure and secured by liens on specified collateral, giving lenders a claim against pledged assets subject to lien priority, intercreditor arrangements and applicable law.
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