Intercreditor issues on debt restructurings

Purpose of Intercreditor arrangements on finance transactions

Commercial finance transactions, such as leveraged finance, real estate and project 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

3. •

   mezzanine debt (or another form of junior debt)

4. •

   high yield bonds

Where multiple sources of debt are used, there will be a number of different types of creditor and each of these will want to protect its own interests. The principal purpose of the intercreditor agreement is to contractually regulate the relationship between the different types of creditors.

Intercreditor agreements deal with a number of issues including:

1. •

   the order in which the debt claims of each class of creditor will rank (ie subordination of debt), and

2. •

   the order