What is 'Primed'

Primed is a term that refers to when a new lender is granted a higher claims priority over a current secured debt holder. A lender is considered primed when they are surpassed on the priority ladder for a borrower's assets. This situation is sometimes also called lien priming, because there is usually a lien or other restriction placed on the property or collateral that is used to secure the loan or debt.

BREAKING DOWN 'Primed'

Primed means that a new lender is allowed to take a higher-ranking position above current lenders or creditors. This contradicts the typical format of lender priority, in which existing lenders who already have a claim to collateral used to secure debt would have the primary position.

Why lenders might agree to be primed

Obviously, existing lenders would not consider this an ideal situation. Lenders would generally object to being primed. Current lenders would want to maintain their existing position in the priority hierarchy, to ensure they have the strongest possible position from which to seize assets or otherwise stake a claim on collateral should the debtor default. However, in some situations lenders may feel it is better to be primed then to risk a debtor being unable to repay the debt at all. A lender may agree to being primed if they feel the new loan can prevent bankruptcy in the company or help increase its financial stability. In this case, allowing a new lender to enter the situation, even if the existing lender will be primed, may be the best possible option for all parties involved.

An example would be a scenario involving a company that files bankruptcy, but is operating as a debtor in possession by remaining in possession and control of the property or assets. If the firm is offered DIP financing, where a new lender gives the ailing company additional funding, its current lenders would usually be primed to the new lender. The current debt holders might agree to being primed if they believe the new funds will allow the company to recover. In this case, the company would have a better chance at paying off all of its debts in the future. If existing lenders objected to being primed, it is possible that the company would then go bankrupt or cease operations, and any existing lenders or creditors could be unpaid.

In some cases, an existing lender can be primed even if they object. The debtor must meet certain requirements to obtain approval for this to happen.
 

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