medium · Corporate Credit Analysis cap-structure

A Second-Lien loan and Senior Unsecured bonds are issued by a Holding Company (HoldCo) with no assets other than the equity of its Operating Company (OpCo). If OpCo has its own Senior Secured debt, the HoldCo 2L and Unsecured debt are:

1. Both structurally subordinated to the OpCo debt, but the 2L is still senior to the Unsecured debt at the HoldCo level.
2. Pari passu, because both tranches ultimately rely on the same underlying pool of OpCo equity value for recovery.
3. Junior to the Unsecured debt, because secured debt cannot legally be issued at a Holding Company entity under any circumstance.
4. Effectively First-Lien in priority, because there is currently no other competing debt instrument issued at the HoldCo level at all.

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