Lenders are discovering what New Yorkers already know: majority rule means the best part of your investment might disappear.
Highlights
- Only 38% of publicly filed high-yield credit agreements protected against lien subordination in all of 2023.
- That protection spiked to a two-year peak of 64% of deals in Q4 2024.
- It settled at 52% in Q1 2025, still up 17 points year-over-year from Q1 2024.
By Dan Wertman, originally published on the Noetica blog, now part of Thomson Reuters. April and July 2025.
Sad to admit I learned something obvious the hard way: apartment boards kind of suck.
I signed my first tiny apartment because it had 24/7 access to a rooftop — great view, fresh air, a refuge from the bustle of the city. But within six months of moving in, the apartment board decided that rooftop access would be paid-only and limited to work hours. With the flick of a pen, a majority made the best part of my apartment basically disappear.
Investors are now experiencing the same thing. Except that rooftop is actually hundreds of millions of dollars of collateral.
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The trend, in three data points
Subordination Agreement: Lending
A Standard Document that sets out the terms under which debt (subordinated debt) owed by a borrower to one creditor (subordinated creditor) is made subordinate to debt owed by the borrower to another creditor (senior debt).
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What sacred rights protect
All-lender-consent terms for lien subordination — often called “sacred rights” — prevent majority rule from stripping collateral in capital markets deals. Without this protection, majority lenders can vote to put new debt ahead of minority lenders in the collateral line, without their consent. It’s like making sure your neighbors can’t use the rooftop, only to find out they can still vote to block you from using it yourself.
The trend, in three data points
Noetica’s data traces a clear arc over the past two years:
- In all of 2023, only 38% of publicly filed high-yield credit agreements protected lenders against lien subordination with sacred rights terms.
- That number held steady through most of 2024, until it spiked to a two-year peak of 64% of deals in Q4 2024.
- By Q1 2025, it had settled to 52% of deals — down from the Q4 ’24 peak, but still up 17 points year-over-year from Q1 2024, a 48.6% increase.
What this signals
The Q4 2024 spike suggests lenders were growing wary of priming debt transactions, with market sentiment shifting toward downside protection. Early signals like this in capital markets tend to forecast broader macro sentiment, and catching them early is a real informational advantage.
There’s a second layer worth noting. Around the same time, only 68% of deals protected how payments get distributed among lenders, versus 52% protecting collateral rights the same way. That 16-point gap means many deals protect how cash is shared but not who gets first claim on the underlying assets.
For more deal-term benchmarking like this, explore the latest Capital Markets Radar Report from Noetica, now part of Thomson Reuters.
