Blended Second Lien Debt
Newlight believes that an effective way for a company to meet its capital needs often rests in the form of a blended second lien debt structure. Ideal for companies that are cash-flow positive and have un-leveraged intellectual property, this debt product quantifies the excess asset value not realized in the conventional secured lending market.
Traditional lenders normally discount the value of the borrower’s asset base, thereby leaving residual collateral that is not being fully employed. In many cases, a company’s intellectual property is left out of the asset calculation entirely, or is discounted so heavily that it has a negligible impact on the loan to value determinants. Newlight’s appreciation of the economic value of this untapped asset has led to the formation of a blended debt structure that introduces a first lien on the intellectual property and a second lien on all other collateral. Importantly, the second lien is lien subordinated rather than payment subordinated, providing the lender with a stronger interest on unencumbered assets.
The dynamics of the security package yields a more flexible product at a cost of funds less than that which may be achieved in the mezzanine market, where the lender is more deeply subordinated.