Second lien notes are bonds secured by a company's assets that rank behind another layer of secured debt, the first lien, in any claim on those assets. Both layers hold a security interest in the same collateral. If the borrower defaults and the collateral is sold, first lien creditors are paid in full before second lien noteholders receive anything from that collateral. The instrument exists because many borrowers want to raise more secured debt than their senior lenders will allow, and because some investors will accept a junior claim on assets in exchange for a higher coupon.

The phrase has become familiar to the media business this autumn. When Skydance, formerly Paramount Skydance, closed its takeover of Warner Bros. Discovery on October 6, 2026, the financing included $30.0 billion of first lien senior secured notes and $12.4 billion of second lien notes, alongside term loans and a further $12.6 billion of second lien notes swapped for old Warner Bros. Discovery bonds.

How the structure works

Corporate debt is ranked in two separate ways. Payment subordination decides who is paid first from all of a company's value. Lien subordination decides who is paid first from specific collateral. Second lien notes are a creature of lien subordination. A 2009 article by Gibson Dunn lawyers in the Review of Banking & Financial Services drew the line clearly: payment subordination "depends only on the amount owed and not on the value of any particular collateral".

Second lien noteholders are still senior creditors: their claim on general value ranks with other senior debt, while their claim on pledged assets ranks second. The difference matters most in bankruptcy, where the US Bankruptcy Code treats a creditor as secured only up to the value of its collateral. If a company has $10 billion of assets pledged, $8 billion of first lien debt and $4 billion of second lien debt, the second lien holders are secured for $2 billion and unsecured for the remaining $2 billion.

The mechanics sit in three documents. The indenture sets coupon, maturity, covenants and redemption terms, and appoints a trustee. Security documents grant the liens, usually held by a collateral agent. The intercreditor agreement governs the relationship between the two lien layers: who may enforce, when, and what the junior holders give up in a bankruptcy. Typical second lien concessions include a standstill period during which they cannot foreclose, agreement not to oppose debtor-in-possession financing approved by first lien holders, and limits on objecting to asset sales.

Skydance's filings show the standard layout. According to its Form 8-K filed with the Securities and Exchange Commission, the first lien notes are "secured by first-priority liens on substantially all personal property of the Company and the Guarantors", while the second lien notes are "secured by second-priority liens on the Collateral". The same subsidiaries guarantee both. The term loans rank "on a pari passu basis" with the first lien notes, meaning equally.

Notes versus loans

Second lien debt comes in two forms. Second lien term loans are floating-rate loans arranged by banks and held by institutional investors such as collateralised loan obligations. Second lien notes are fixed-rate bonds, usually sold to qualified institutional buyers under Rule 144A, which exempts private placements from SEC registration. The Skydance second lien notes, according to the 8-K, "do not have any registration rights", unlike its first lien notes.

The price of the junior position shows up in the coupon. Skydance's first lien notes due 2031 carry 7.050%, while its dollar second lien notes due 2031 carry 8.250%, a premium of 1.2 percentage points for the same maturity. At 2036, the gap is similar: 7.900% for first lien against 9.125% for second lien.

Covenants help explain why a borrower uses the layer at all. PPC Land reported that Skydance's new credit agreement caps total leverage at 5.50 times and first lien net leverage at 3.25 times. Debt in the space between those two ceilings cannot be first lien, so it is either second lien or unsecured.

Who issues and who buys

Issuers tend to be high-yield companies: leveraged buyouts, firms financing large acquisitions, and businesses refinancing near-term maturities. Local television broadcaster Gray Media closed a $900 million offering of 9.625% senior secured second lien notes due 2032 on July 18, 2025, according to a company release filed with the SEC. Proceeds, with revolver borrowings, redeemed all of its 7.000% senior notes due 2027 and repaid $402.5 million of a term loan.

Whirlpool provides a different example. The appliance maker sold $1 billion of 7.500% senior secured second lien notes due 2031 and $1 billion of 7.875% notes due 2034, closing on June 16, 2026, according to Kirkland & Ellis and Simpson Thacher, which advised on the deal. Kirkland described it as Whirlpool's "first offering of secured debt", upsized from $1.5 billion. The proceeds refinanced euro notes due 2026 and 2027.

Origin and evolution

Junior liens on property are as old as mortgages. The modern corporate market for second lien debt grew in the early 2000s. According to a May 2010 report by the American Bar Association's Model First Lien/Second Lien Intercreditor Agreement Task Force, the dollar volume of second lien loans grew from about $8 billion in 2003 to more than $29 billion in 2006. Volume reached $15.21 billion in the second quarter of 2007 alone, then fell below $300 million by the second quarter of 2009 as the financial crisis closed the market.

Early deals were often "silent seconds", where the junior lender, in the ABA report's words, "generally subordinated virtually all of its rights as a secured creditor" until the first lien was repaid. The crisis tested those terms in court, and drafting varied widely. The ABA task force published its model intercreditor agreement in The Business Lawyer in May 2010, with the stated aim, according to a McGuireWoods note from September 2010, of balancing "the interests of the holders of first lien and second lien debt".

In the bond market, second lien notes became a standard tool in refinancings and distressed exchanges, where holders swap unsecured paper for new secured notes.

Why it matters for the marketing community

Media and advertising companies borrow heavily, and their capital structures shape their budgets. Skydance told investors it expects annual interest payments of about $6 billion, and PPC Land reported that the company plans to cut at least $1 billion from a $5 billion marketing budget as it unifies media buying. Interest on second lien paper is a meaningful part of that bill: the $6 billion 8.250% tranche alone costs about $495 million a year.

Lien ranking also decides who controls a company in distress, which affects ad sales teams, agencies and vendors owed money. In Getty Images' prepackaged Chapter 11, filed October 21, 2026 in Delaware, holders of 11.25% senior secured notes converted dollar for dollar into new notes with a projected 100% recovery. Unsecured noteholders shared about $170.2 million against $270 million of principal, a recovery of about 63%. Secured status, and its rank, drive those outcomes. Getty had about $1.47 billion of debt when the NYSE began suspension proceedings.

Limitations and criticisms

The main weakness is recovery. If collateral is worth less than first lien claims, second lien holders get little from it. ABF Journal, synthesising Moody's and S&P Global data going back to 1987, put ultimate recoveries for second lien loans at roughly 30 to 45 cents on the dollar, against about 70 to 80 cents for first lien loans. These are secondhand figures, and notes may not recover exactly as loans do.

Intercreditor waivers cause disputes too. Second lien holders can lose the right to challenge debtor-in-possession financing or asset sales, and courts have not enforced such waivers consistently.

Liability management transactions have added a newer risk. In 2020, Serta Simmons Bedding issued new super-priority debt to some lenders that ranked ahead of its existing first and second lien term loans. On December 31, 2024, the Fifth Circuit Court of Appeals ruled the exchange was not an "open market purchase" permitted by the credit agreement, according to a Proskauer client alert. The episode still showed that a lien position can be leapfrogged where documents allow it.

Security can also disappear by design. Skydance's indentures provide that liens on the collateral "will be released" once certain credit ratings and other conditions are met, turning secured bonds into unsecured ones.

Not the same as

  • First lien notes. Secured by the same collateral but paid first. Skydance's first lien notes rank equally with its term loans.
  • Senior unsecured notes. No claim on specific assets. In bankruptcy they share whatever value remains after secured creditors, as Getty's unsecured noteholders did.
  • Mezzanine or subordinated debt. Usually payment subordinated and often unsecured. Second lien debt is subordinated only in its claim on collateral.
  • Second mortgage. A consumer property loan behind a first mortgage. Same principle, different market.

Recent developments

Skydance's $12.4 billion of new second lien notes, plus the exchange of Warner Bros. Discovery bonds into second lien paper, put it among the most prominent second lien issuers in media as of November 2026. In its third-quarter 10-Q, filed November 9, the company said debt maturing within five years of closing totals $20.29 billion, and it committed to cut net leverage to 3.0 times by the end of 2029. The company said reaching those targets would not require new capital or asset sales.

Elsewhere, Getty's plan, which as of its October filing had a confirmation hearing set for December 14, 2026, will show how its secured classes fare after emergence.

Timeline

  • 1978: US Bankruptcy Reform Act sets the rule that a secured claim is limited to the value of its collateral.
  • 2003: Second lien loan volume about $8 billion, according to the ABA task force.
  • 2006: Volume exceeds $29 billion.
  • Q2 2007: Quarterly second lien loan volume peaks at $15.21 billion.
  • Q2 2009: Quarterly volume falls below $300 million.
  • May 2010: ABA publishes the Model First Lien/Second Lien Intercreditor Agreement in The Business Lawyer.
  • 2020: Serta Simmons uptier ranks new debt ahead of existing first and second lien loans.
  • December 31, 2024: Fifth Circuit rules the Serta exchange was not an open market purchase.
  • July 18, 2025: Gray Media closes $900 million of 9.625% second lien notes due 2032.
  • June 16, 2026: Whirlpool closes $2 billion of second lien notes, its first secured debt.
  • September 30, 2026: Paramount Skydance prices first lien and second lien notes for the Warner Bros. Discovery deal.
  • October 6, 2026: Skydance closes the Warner Bros. Discovery acquisition.
  • October 21, 2026: Getty Images files a prepackaged Chapter 11 in Delaware.
  • November 9, 2026: Skydance files its third-quarter 10-Q, guiding to about $6 billion of annual interest.

Summary

Who: Companies with high leverage issue second lien notes, from Skydance and Gray Media to Whirlpool. Buyers are high-yield funds, insurers and credit investors. Trustees and collateral agents administer them, and intercreditor agreements bind them to first lien holders.

What: Fixed-rate bonds secured by the same collateral as first lien debt but ranking second in claims on it, paying higher coupons to compensate.

When: Second lien lending expanded from about 2003, collapsed in 2008 and 2009, gained a model intercreditor agreement in May 2010, and returned to prominence in 2025 and 2026 refinancings and acquisitions.

Where: Mainly the US high-yield market under Rule 144A, with euro tranches such as Skydance's €885 million notes, and in US bankruptcy courts when issuers fail.

Why: Borrowers use them to raise secured debt beyond first lien leverage limits at lower cost than unsecured bonds. Investors take a junior claim on collateral for extra yield, accepting lower recoveries and the risk of being primed.