NEW YORK — As middle-market corporations navigate maturity walls and refinancing windows, structuring the right balance between first-lien bank revolvers and junior debt is paramount. Second-lien loans provide the junior capital layer that allows borrowers to unlock additional debt capacity without violating senior bank leverage limits.

Through our Financing & Mezzanine Debt desk, Pinnacle Private Credit originates second-lien notes ($5M to $25M) structured to coexist harmoniously with commercial bank working capital lines.

The Mechanics of Lien Subordination

Unlike unsecured debt, a second-lien facility is a fully secured loan: it possesses a perfected security interest in all company collateral, but agrees contractually to stand behind the first-lien lender during foreclosure or bankruptcy:

The Three Pillars of an Intercreditor Agreement
  • Lien Subordination: The first-lien lender has first claim on collateral proceeds until its debt is satisfied in full.
  • Payment Subordination (or Parity): Second-lien interest is paid currently in cash each quarter, provided no senior payment default exists.
  • Standstill Periods: If a default occurs, the second-lien lender agrees to a 90 to 180-day standstill period, granting the first-lien lender exclusive right to direct remediation.

When Second-Lien Outperforms Unitranche

While unitranche is popular for its simplicity, second-lien structures are ideal when a company already maintains an inexpensive asset-based revolver with a local commercial bank (e.g. SOFR + 250 bps). Rather than refinancing that low-cost bank line into a higher-priced unitranche, the borrower simply layers a Pinnacle second-lien loan underneath, achieving the lowest possible blended cost of capital.

“Second-lien notes allow companies to keep their prized low-cost bank lines while securing the non-dilutive junior capital needed to close acquisitions.”

Learn more about structuring subordinated debt under Financing Solutions or submit parameters to our New York desk.

About Pinnacle Private Credit

Headquartered in New York, Pinnacle Private Credit is an institutional direct lender deploying $5M to $50M flexible credit solutions across North America. To discuss deal financing or review preliminary parameters with our Investment Committee, contact our direct lending desk.

Underwriting Desk: (212) 808 5966 • [email protected] • Submit Deal Parameters →