1st Lien and 2nd Lien

This problem tests a core debt and leveraged finance concept, how collateral rights and payment priority differ across secured tranches. Candidates need to understand what a lien is, how lenders are ranked in a capital structure, and why that ranking matters if a borrower runs into distress or bankruptcy. Interviewers ask this because analysts and associates must quickly assess downside protection, relative risk, and how different financing products are positioned in a deal. It also helps show that you understand why lenders demand different pricing based on their place in the recovery waterfall.