--- title: "First Lien | Altss Glossary" description: "A first-lien loan is debt secured by a first-priority security interest in the borrower's collateral, so that proceeds from enforcing on that collateral…" canonical: "https://altss.com/glossary/first-lien" --- Glossary · Security / instrument # First Lien Also called: first lien loan · 1L · first lien senior secured A first-lien loan is debt secured by a first-priority security interest in the borrower's collateral, so that proceeds from enforcing on that collateral go to first-lien creditors before any second-lien or other junior secured creditor. Publisher: Altss LLCContent modified 2026-10-02 ALTSS-CREDIT-007 When a borrower pledges the same assets to more than one lender, the lenders agree on an order for sharing what the collateral fetches. First-lien lenders are first in that order. That gives them the best recovery prospects among the company's lenders, which is why they accept the lowest margins. First lien describes the order of claims on collateral; it does not by itself guarantee being repaid first in every scenario. ## What first priority means Lien priority is set by the security documents, by the priority rules of the governing law and, where several secured lenders share collateral, by an intercreditor agreement. In the US, the uniform text of Article 9 of the Uniform Commercial Code (UCC), which applies as enacted by each state, ranks conflicting perfected security interests in the same collateral by priority in time of filing or perfection (section 9-322(a)(1)), subject to the special priority rules that section 9-322(f) preserves, and does not prevent a secured party from subordinating its priority by agreement (section 9-339). Under typical intercreditor terms, first-lien lenders control enforcement: they decide when and how collateral is sold, and junior lien holders agree to a standstill. Several first-lien instruments can rank equally (pari passu). A revolving facility, a term loan and first-lien notes often share one first-priority lien and split proceeds pro rata. ## First lien is not always first out - **Super senior facilities.** In many European structures a revolving facility is "super senior": it shares the same security as the term debt but takes enforcement proceeds first under the intercreditor agreement. - **First-out / last-out.** In a [unitranche](https://altss.com/glossary/unitranche) split by an agreement among lenders, all lenders hold first-lien security, but last-out lenders are repaid only after first-out lenders. - **Priming.** A liability management exercise can create new debt that ranks ahead of existing first-lien debt, either through an uptier exchange or by moving collateral to an unrestricted subsidiary. Existing first-lien lenders keep their label but lose their priority. ## Common first-lien instruments - Term Loan B in the syndicated market; - first-lien term loans and unitranche facilities in [direct lending](https://altss.com/glossary/direct-lending); - revolving credit facilities; - first-lien senior secured notes in the bond market. Strategies marketed as first-lien or senior secured may hold any of these. ## How lenders and LPs use the term Credit agreements often test first-lien net leverage separately from total leverage. That test caps how much additional debt can share the first lien, through incremental or "accordion" capacity. LPs analysing a first-lien portfolio should ask: - what share of the book is unitranche or last-out; - what the average first-lien leverage is at entry; - how much first-lien capacity the documents leave for the borrower to add later. ## Worked example ### Illustrative first-lien leverage vs total leverage A company with $50m of EBITDA has a $225m first-lien term loan and a $50m [second-lien](https://altss.com/glossary/second-lien) loan. First-lien leverage is $225m / $50m = **4.5x**; total leverage is 5.5x. A first-lien lender is exposed to the first 4.5 turns of EBITDA, so its loss begins only if enterprise value falls below 4.5x EBITDA, ignoring enforcement costs and any debt ranking ahead. Examples are illustrative; figures are not market data. ## Not the same as - [Senior Secured Debt](https://altss.com/glossary/senior-secured-debt): Senior secured is the broader family. It includes second-lien loans, which are senior in payment but second in lien. - First-Out / Last-Out: A first-out/last-out (FOLO) structure splits one first-lien facility into two payment priorities among lenders; both parts remain first lien. - [Second Lien](https://altss.com/glossary/second-lien): Second lien shares the same collateral but takes proceeds only after first-lien claims are paid. ## Common mistakes - Equating first lien with "repaid first in all cases". Super senior, first-out and priming debt can rank ahead. - Measuring a first-lien lender's risk on total leverage instead of leverage through its own tranche. - Assuming a first lien covers all assets. Excluded assets and unrestricted subsidiaries sit outside it. ## Edge cases - A unitranche last-out piece is legally first lien but economically similar to second lien. - After an uptier exchange, non-participating first-lien lenders may rank behind newly issued super-priority debt. ## Sources - [Uniform Commercial Code sec. 9-322 - Priorities among conflicting security interests in and agricultural liens on same collateral](https://www.law.cornell.edu/ucc/9/9-322). American Law Institute and Uniform Law Commission (uniform text; LII mirror), UCC Article 9 text as published by LII (accessed 2026-10-01). Status: uniform text; in force as enacted in state law (checked 2026-10-01). Sec. 9-322(a)(1)-(2), (f) — supports: Conflicting perfected security interests rank by priority in time of filing or perfection; perfected beats unperfected; subsection (f) keeps other priority rules - [Uniform Commercial Code sec. 9-339 - Priority subject to subordination](https://www.law.cornell.edu/ucc/9/9-339). American Law Institute and Uniform Law Commission (uniform text; LII mirror), UCC Article 9 text as published by LII (accessed 2026-10-01). Status: uniform text; in force as enacted in state law (checked 2026-10-01). Sec. 9-339 — supports: Article 9 does not preclude subordination by agreement by a person entitled to priority, so an intercreditor agreement can reorder lien priority - [Concentration of Control Rights in Leveraged Loan Syndicates](https://www.philadelphiafed.org/-/media/FRBP/Assets/working-papers/2019/wp19-41.pdf). Mitchell Berlin; Greg Nini; Edison G. Yu, Federal Reserve Bank of Philadelphia (Working Paper 19-41), WP 19-41, October 2019. Status: published working paper (checked 2026-10-01). p. 3, n. 5 — supports: In the sampled leveraged loan deals, term loans secured by a first lien share equal priority with the revolving line of credit on default - [Weak Credit Covenants](https://www.nber.org/papers/w27316). Victoria Ivashina; Boris Vallee, National Bureau of Economic Research (Working Paper 27316), NBER WP 27316, June 2020. Status: working paper; published version listed by NBER as Management Science 71(12), 9998-10021 (2025), not opened (checked 2026-10-01). p. 16; pp. 20-21 and n. 23 — supports: Credit agreements typically restrict new debt through a maximum Debt/EBITDA ratio; in the J.Crew transaction, collateral moved out of the senior collateral package to an unrestricted subsidiary (not party to the credit agreement) secured new debt with a senior secured claim over it ## Related terms 3 terms - [Second Lien](https://altss.com/glossary/second-lien) - [Unitranche](https://altss.com/glossary/unitranche) - [Senior Secured Debt](https://altss.com/glossary/senior-secured-debt) ## Referenced by 2 terms - [Debt-to-EBITDA (Leverage Multiple)](https://altss.com/glossary/debt-to-ebitda) - [Direct Lending](https://altss.com/glossary/direct-lending) ## Concept record Concept ID ALTSS-CREDIT-007 Classification Security / instrument Topics Private credit Version 2.0.0 Last reviewed 2026-10-02 Structured data [JSON](https://altss.com/reference/concepts/first-lien.json) Source check Legal statements checked against the cited primary sources on 2026-10-02 ([how](https://altss.com/methodology)). General information, not advice. ## Canonical URL https://altss.com/glossary/first-lien