1st Lien: Definition & Meaning | Bondfish
A 1st lien (first lien) is a first-priority legal claim on a borrower’s collateral, giving its holders the right to be repaid from that collateral before any other creditor.
What it means
A lien is a legal charge over specific assets — property, equipment, inventory, shares of subsidiaries — pledged as security for a debt. When the same collateral backs several layers of debt, the liens are ranked: 1st lien creditors stand first in line to the proceeds of that collateral, 2nd lien creditors come next, and unsecured creditors have no claim on it at all.
1st lien debt is the most senior form of secured borrowing and is common in leveraged finance, where high-yield issuers raise 1st lien bonds and loans alongside junior debt.
Why it matters for bond investors
Priority over collateral is what protects you when things go wrong. In a default, 1st lien creditors historically achieve the highest recovery rates of any debt class, because the collateral is sold (or handed over) for their benefit first. The trade-off is a lower yield than the same issuer’s junior debt: less risk, less compensation. When you see a “1st lien senior secured” label on a bond, it is telling you where that bond sits in the issuer’s bond rank hierarchy — at the very top.
Related terms
This definition is for general information only and is not investment advice. Bond investing involves risk, including possible loss of principal.