First-lien versus second-lien recovery — what should I expect, and why?

How to answer

First-lien recovers materially more than second-lien because it sits at the top of the waterfall with the priority claim on collateral. Long-run rating-agency data put first-lien recoveries roughly in the high-60s to mid-70s percent range, though recent vintages have trended lower as structures became more loan-heavy and cov-lite. Second-lien is much weaker and more dispersed — historically the low-to-mid-40s, with recent agency estimates running materially lower (in some cases the teens to 30s) because once the first-lien is made whole there's often little value left. Second-lien behaves equity-like in stress, so always quote these as ranges that move with the cycle.

Key idea: First-lien ~high-60s/mid-70s% (recent prints lower); second-lien ~teens-40s% and falling; 2L is equity-like; quote ranges.