medium · Corporate Credit Analysis Capital Structure & Debt Mechanics
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:
- Both structurally subordinated to the OpCo debt, but the 2L is still senior to the Unsecured debt at the HoldCo level.
- Pari passu, because both tranches ultimately rely on the same underlying pool of OpCo equity value for recovery.
- Junior to the Unsecured debt, because secured debt cannot legally be issued at a Holding Company entity under any circumstance.
- 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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