What is 2nd lien debt?
Second lien lending refers to loans where a creditor’s claims are subordinated to those of the creditors who hold senior debt. Senior lien holders might receive 100% of the loan balance if the collateral on the loan is sold or they might only receive a fraction of the total amount of the loan.
Is second lien secured?
A second lien creditor’s claim is treated as a secured claim to the extent of the value of its interest in the collateral. As a result, a creditor that is undersecured (that is, the value of its collateral is less than the amount of its prepeti- tion claim) will hold both secured and unsecured claims.
What is typically included in an Intercreditor agreement?
An Intercreditor Agreement, commonly referred to as an inter-creditor deed, is a document signed between two or more creditors, stipulating in advance how their competing interests are resolved and how to work in tandem in service to their mutual borrower.
What is the difference between 1st and 2nd lien?
A lien is a claim on collateral pledged to secure the financing. The first lien debt has the first claim on collateral, while the second lien has a second priority claim. Revolvers, also a form of senior debt, can be secured by their own pool of assets or share collateral with first lien debt.
Can second lien be senior secured?
The vast majority of all second lien loans are senior secured obligations of the borrower. Second lien loans differ from both unsecured debt and subordinated debt.
What is the purpose of an Intercreditor agreement?
The purpose of an intercreditor agreement is to set forth the rights and positions with respect to a borrower’s collateral, payment, and priority of payment, inter alia, between Page 2 various creditors.
What is the role of an Intercreditor Agent?
In the highly demanding and fast paced lending environment, the Facility Agent (sometimes known as the Intercreditor or Loan Agent) acts as liaison between the lenders and the borrower in all aspects of the transaction.
What is the purpose of Intercreditor agreement?
The Intercreditor Agreement, a recommendation of the Sunil Mehta committee, aims to deal with bad loans as an attempt to speed up the resolution of stressed assets.
Does second lien debt amortize?
Put simply, if a borrower defaults, any second-lien debt gets paid after the first or original first lienholder is paid off in the event of bankruptcy of asset liquidation. In other words, second-lien is second in line to be fully repaid in the case of the borrower’s insolvency.
Is an Intercreditor agreement a deed?
A contract, often a deed, which regulates the respective rights and ranking of two or more funders (often both debt and equity) in a financing.
What is the difference between a subordination agreement and an Intercreditor agreement?
An intercreditor agreement is a bit different than a subordination agreement. They both serve to do the same thing, allow two different lenders to “split up” the collateral of a business so both can be secured in the first lien on their respective collateral.
What was the purpose of Intercreditor agreement by Indian banks and financial institutions?
The correct answer is To aim at faster resolution of stressed assets of Rs 50 crore or more which are under consortium lending. The inter-creditor agreement is aimed at the resolution of loan accounts with a size of ₹50 crores and above that are under the control of a group of lenders.
What is the difference between a subordination agreement and a Intercreditor agreement?
because one of the parties is unsecured, an intercreditor agreement is not appropriate but a subordination agreement can establish a priority ranking for proceeds of realisation of the business assets.
Is an Intercreditor agreement a security document?
However, an intercreditor agreement is typically a more complex document than a deed of priority which will usually only rank secured debt providers and regulate the distribution of proceeds of enforcement of security.
How does an Intercreditor agreement work?
An intercreditor agreement sets forth the priority of the liens in relation to one another and also governs other rights and obligations of each group of lenders in relation to the other group of lenders.
What are the rights of a second-lien lender?
Second-lien lenders commonly waive the right to (1) oppose the sale of collateral in a §363 sale or as part of a reorganization plan, or (2) contest the value of the collateral to be sold. Although these are common provisions in second-lien inter-creditor arrangements]
What does it mean when a second lien is silent?
The second lien becomes “silent” when, pursuant to the terms of an intercreditor agreement or like document, the second lienholder agrees to give up many of the rights it has as a second lienholder upon an event of default or in the event of a bankruptcy case commenced by or against the borrower.
How big is the second lien market?
In fact, the second lien market has expanded dramatically since 2003. One commentator reported that in 2003, the volume of second lien loans was $3.265 billion, and in 2004 (first through third quarters), it was $9.899 billion.
How are secured second lien mortgages structured?
Most commonly, secured second liens can be structured one of two ways. In one way, the first lien is secured by all the available assets while the second lien relies on incremental dollars against the same collateral pool—very similar in concept to a second mortgage on a home.