Second lien financing, a form of subordinated debt, is a potentially powerful funding tool.  Intended to be transition capital, second lien loans are a particularly attractive option for companies with limited access to the capital markets due to operational or financial issues relating to a turnaround, restructuring or change of ownership. Primary institutional sources of second lien financing include CLOs (collateralized loan obligations), hedge funds, finance companies and insurance companies.

While second liens are sometimes employed in leveraged buyouts and other acquisitions, they are more frequently used to rebuild the company’s finances and operations.  Companies use these loans to refinance more expensive debt, pay down bank loans or add operating cash to the balance sheet.

Second lien financing can be a competitive alternative to traditional mezzanine financing since it is usually less expensive in terms of interest rate, less dilutive in terms of equity features and tends to feature less restrictive prepayment penalties.

Generally, second lien loans are structured in one of two ways: 1) The first lien is secured by all the available assets while the second lien relies on the incremental asset coverage against the same collateral pool; or 2) The first and second lien loans are secured by separate pools of capital.

RSM EquiCo Capital Markets has the expertise to assist your company in analyzing if a second lien financing makes sense. If so, RSM EquiCo Capital Markets can then determine the appropriate second lien structure, contact funding sources and negotiate the close of the financing.