What Does An Intercreditor Agreement Do

Posted by on Oct 14, 2021 in Uncategorized | 0 comments

Such an agreement also includes the regulation of redemption rights. This right allows a lender to purchase the claims and privileges of other lenders. Such an option is triggered after certain events, for example. B after the filing of insolvency proceedings. The parties must agree on the changes that require consent and whether the requirement to obtain consent should ever be rescinded (p.B. should the lead lender need the mezzanine lender`s consent when the mezzanine debt is completely under water?). provides links to useful information on how to design and negotiate an agreement between lenders In such a scenario, the government agency can act as a junior lender, the financier as the lead lender, and the company (Y) as the borrower. Since the company guarantees the loan of both financiers with the same property, the main creditor will certainly want to enter into an intercredit agreement with the government agency to protect its interests. For the lawyers involved in the transaction, it is much easier (time savings and, ultimately) if the parties have already agreed on the commercial terms of the intercreditor agreements before the lawyers are fully summoned and these are set out in clear agreed principles that can be used by the lawyers both for the preparation and revision of the intercreating agreement. The purpose of this article is to provide a simple and non-exhaustive list of some of the key issues that parties should consider at this early stage.

In general, in every document signed by two or more parties, each party should be aware of the critical elements of the agreement. Therefore, it is necessary for a junior lender to reach a clear ground before starting the transaction and identify the fundamental issues, as follows: the intercrediting agreement plays a central role in the privilege. It is therefore crucial for both lenders to build a solid foundation in terms of rights and priorities in the event that a borrower`s financial capabilities erode and it fails. In the absence of such a document, each party may simultaneously exercise its own decisions and be inconsistent. The whole process can be unethical and not economic, and can quickly turn into a legal mess in court. However, in some cases, there are more than two lenders. Or even more than two senior lenders. In such a case, the senior creditors sign a separate agreement defining the powers of each. specifies the main parties to an intercreditor agreement The mezzanine lender will want to ensure that there is certainty as to when these payments can be resumed (for example.B. if the event that caused it has been corrected or cancelled? or does the lead lender need to take positive action and to what extent is this discretionary?). The mezzanine lender will also want to ensure that the group of borrowers is not released from any liability for paying the debt due to the restrictions imposed by the lead lender and that there is clarity on what happens to payments that were previously restricted (p.B are they capitalized? or will they be paid after the restriction expires?). The main objective of the intercreditor agreement is to ensure that any type of debt used in the transaction presented a risk commensurate with its price, i.e.

that senior debt (which has a lower yield) presents a lower risk than the more expensive carrying debt. It is of paramount importance to ensure that senior debts rank ahead of additional debts in terms of right and priority of payment. But in the event that there is a senior/junior lender, the lenders enter into an agreement between the creditors. .