The first lien
(or 1st lien) is the senior rank
of the bond, which has a higher priority in payments if the borrower is unable to secure obligations compared to the ranks of the lien (second lien, etc.).
The principle of using the right of retention is based on the holder’s ability to sell the issuer’s property on a priority basis to secure missing payments on the bond, while the property that serves as the object of the right of retention cannot be sold in any other way and to secure other obligations of the issuer, and is also encumbered for another stage of emission formation.
All lienable senior debt has priority over subordinated debt, so in the event of an issuer’ default, creditors holding subordinated debt cannot receive payment until all holders of principal are paid in full or all claims of holders of such senior debt are paid.
Often, bonds with different liens are sold in tranches: for example, a borrower issues 3 different tranches of a bond, where bond A has the first lien, bond B has the second lien, and bond C is subordinated. At the same time, coupons, yields and other parameters may differ significantly in accordance with the risk of the holder not to receive payments on the debt. It should be noted that holders of the first lien debt may not get all their money back if the borrower fails to raise enough money from the sale of their encumbered property, so it is critical to ensure that the loan is backed by significant collateral in the form of real, tangible assets.
Thames Water Utilities, FRN 28aug2042, GBP
Transmission Finance Dac, 2.701% 16oct2037, EUR