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ERM Glossary: First or Second Lien

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A first lien gives the holder (usually a bank lending funds to someone) the first right to collect compensation from the sale of the underlying collateral in the event of a default on the loan.

 

A second lien (and conceivably further liens) may relate to the same collateral. However, in the case of default, compensation for this debt would only be received after the first lien has been repaid.

 

Liens of this nature can be viewed as being equivalent to tranches in a structured product, e.g. a CDO or CLO

 


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