A secured creditor is a creditor whose claim is backed by a real or contractual security interest over specific assets of the debtor — such as a pledge over shares (gage mobilier in Switzerland, nantissement in France), a mortgage over real property, an assignment of receivables, or a general charge over the debtor's assets. In the event of default, the secured creditor can enforce the security and recover from the pledged assets in priority over unsecured (chirographary) creditors.

In LBO structures, the senior lenders (first lien) typically hold a comprehensive security package over the acquisition vehicle and the target: pledge over shares of the holding and target, pledge over bank accounts, assignment of intercompany claims, and sometimes a real property mortgage. The second-ranking security holders (second lien) hold identical security but rank behind the first lien in enforcement priority. The intercreditor agreement between creditor classes defines the enforcement sequence, standstill periods, and waterfall distribution.

In a distressed scenario, the value of a secured creditor's position depends critically on the value of the pledged assets and their recoverability — the subject of a liquidation valuation. If the security package covers assets worth less than the outstanding debt, part of the claim becomes effectively unsecured (deficiency claim), ranking below other secured creditors for the shortfall. This analysis is central to creditor negotiations in any restructuring.

At Hectelion, we value pledged assets and assess recovery scenarios for secured creditors in our distressed valuation and due diligence mandates.