In recent years, second lien financings have increased in popularity. Senior creditors rely on intercreditor agreements to protect their interests by limiting the rights that junior lien holders would otherwise enjoy as secured creditors through either lien subordination, payment subordination, or both. Lien subordination requires the turnover to first lien creditors of proceeds of shared collateral until the first lien holders are paid in full.

At the end of the day, what really drives lender decisions with regard to addressing problem loan modifications, workouts, and restructuring issues revolves around the impact of those decisions on the financial statements condition of the institution.

Likewise, the regulatory and accounting treatment behind those decisions tends to dictate policy and procedure for the CRE lending and workout areas of the bank.