Acquisition finance—intercreditor issues

The intercreditor agreement

Acquisition finance transactions are often funded from a number of different sources. Common sources of funding are:

1. •

   equity (this will typically comprise equity in the form of share capital and quasi-equity in the form of subordinated debt instruments such as loan notes)

2. •

   senior debt (including senior loan facilities and/or senior secured notes)

3. •

   unitranche debt (sometimes known as ‘stretched senior’)

4. •

   junior debt such as second lien, mezzanine or PIK

5. •

   high-yield notes

See Practice Note: Sources of finance for leveraged buy-outs for more information about common structures and the different types of funding typically used.

Where multiple sources of debt are used, there will be a number of different types of creditor and each of these will be focused on protecting its own interests. The principal purpose of the intercreditor agreement is to regulate the relationship between the different types of creditors. For information on subordination generally, see Practice Note: Subordination.

Depending on the