Second Lien Loan - Application in Leveraged Buyouts

Application in Leveraged Buyouts

Second lien loans are used in leveraged buyouts to fill small gaps between financing needs of the borrower and maximum thresholds (measured by various leverage metrics) of senior secured lenders. The arrangement fee and interest (finance) of a second lien loan are higher than those of the first lien secured loan of the same borrower because of increased risk for the lender that comes from a subordinated security interest. However, second lien debt can often reduce the overall cost of capital in a leveraged buyout transaction, replacing other more expensive forms of financing (e.g., senior unsecured debt).

Read more about this topic:  Second Lien Loan

Famous quotes containing the word application:

    The human mind is capable of excitement without the application of gross and violent stimulants; and he must have a very faint perception of its beauty and dignity who does not know this.
    William Wordsworth (1770–1850)