How does senior secured HY (1L / 2L) differ from senior unsecured HY?

Debt is backed by collateral.

• First lien (1L): first claim on collateral; lowest yield among HY debt.
• Second lien (2L): second claim on collateral; higher spread than 1L.

Senior claim but no specific collateral. It ranks below secured debt in recovery because secured creditors have priority over collateral.

• 1L secured: highest recovery
• 2L secured: medium recovery
• senior unsecured: lower recovery
• subordinated: lowest recovery

Investors demand higher yield as recovery and ranking worsen. In LBO refinancings, senior unsecured paper often prices materially wider than 1L debt.

HY pricing is not just default probability; it is default probability times loss severity.