Glossary
Credit and risk
What is fulcrum security?
The class where value runs out, which usually takes the reorganised equity.
Senior classes are paid in full; junior ones get nothing; the fulcrum gets part, so it fights hardest over the valuation.
A worked example
The business is worth $600m. The $400m first lien is covered in full. The $300m second lien recovers $200m, or 67 cents on the dollar. The second lien is the fulcrum, so it usually ends up owning the reorganised company.
Where it catches you in the game
- Credit bids in the plan room are efficient only when the first lien is the fulcrum.
It comes up most on the restructuring desk.
Related terms
Learn it by using it
Definitions stick once they've cost you money. Take a seat, make three calls a year and watch what fulcrum security does to your returns.