Second lien meaning

The carrier, operating services linking cities across Florida and the Caribbean, entered bankruptcy on 30 December 2024. It explained that opting to transition to a different aeroplane maker severely upended its operations when the replacement supplier failed to consistently provide and timely deliver new aircraft. The company’s funded liabilities are divided between equity owner Versa Capital Management’s US$211m of second-lien borrowings and US$186m in convertible notes held by Brigade Capital Management, which is receiving advice in the matter from Nelson Mullins Riley & Scarborough LLP. Brian P Hall Smith Gambrell Hall serves as a partner with Smith Gambrell and leads the firm’s finance, banking and restructuring practice, based out of its Atlanta office...

Having emerged in 2011 by picking up the assets of a failed carrier at auction, and later expanding by buying a smaller carrier in a further insolvency sale, Silver Airways filed for Chapter 11 on 30 December 2024. A shift to a new aeroplane manufacturer badly disrupted Silver Airways' business and finances, driving the company to seek investments and loans from its parent and others, according to a first-day declaration by CEO Steven A. Rossum. Silver Airways' largest individual creditor is Versa Capital Management, the private equity fund that has owned it since 2017 and holds a $211m second-lien loan. In 2022 it issued $50m of convertible notes to Brigade Capital Management LP, an amount that swelled to $186m over two years. The terms of the Brigade loan provided that Silver Airways would be penalised with an increase in the loan's principal if it failed to make interest payments in cash, according to a bankruptcy declaration. A further $60m in unsecured debt rounds out the balance sheet in total...

Borrowers can choose from a broad range of debt and capital structuring routes. Traditionally, senior debt (typically provided by banks) sat at the top, then mezzanine finance, followed by junior debt, each ranking ahead of unsecured creditors and shareholders/equity holders. After the 2007/8 credit crunch, businesses increasingly tapped capital markets and non-bank sources (eg private credit) to widen their funding, adding further layers of indebtedness. This Practice Note offers a straightforward overview of the different tiers of debt and security a restructuring lawyer may encounter. It outlines the financing layers and the forms of security commonly seen in practice by a restructuring lawyer. It also sketches how those tiers now sit together in practice. Capital structures and interplay between creditors Typically, external borrowings sit at the operating company (Opco) level. The Opcos own the core business assets (eg premises, key manufacturing equipment and valuable intellectual property), produce most of the profits, and lenders seek security over those assets. In some arrangements, high-value items such as intellectual property or...

This table provides a concise overview of typical negotiated outcomes across a range of intercreditor topics, flagging the principal areas where junior creditors’ rights converge or diverge depending on the junior debt instrument; is drawn from documentation in the upper mid‑market and large capitalisation segments of the European leveraged finance market; assumes a second lien facility is documented separately from the senior debt and votes as an independent creditor class. Intercreditor rights may differ because of (among other factors): transaction‑specific structural features; whether the debt is distributed in Europe or the US; documentary requirements of particular investors (especially where junior debt is pre‑placed); and whether a junior creditor has actively negotiated its rights, or they appear in an evergreen intercreditor agreed solely between the sponsor and senior creditors. For further detail on the topics covered in this table, see Practice Notes: Introductory guide to Intercreditor Agreements Intercreditor agreements—effective releases...

Investors in high yield paper are now exerting a far greater influence on restructurings. Historically, despite high yield instruments appearing in a number of sizeable European corporate capital stacks, talks around restructurings were largely led by senior banks and other syndicated lending groups. The key reason was that high yield notes were frequently unsecured, offering minimal, if any, return on a winding-up, in contrast to leveraged loans, which are commonly secured. As a result, high yield holders generally wielded little sway over restructuring discussions. Strategy and types of holders Following the 2008 global financial crisis, leveraged finance has shifted towards greater use of high yield bonds, in part due to tighter leveraged lending rules and guidelines for loans. Alongside buoyant M&A propelling market expansion, European issuers have often tapped the high yield market to replace senior, mezzanine and second-lien leveraged loans, opting to refinance through notes rather than loans. These refinancings frequently meant the new high yield issuance shared security and guarantee packages comparable to the loans they...