Intercreditor agreement—key provisions

The following Banking & Finance practice note provides comprehensive and up to date legal information covering:

  • Intercreditor agreement—key provisions
  • Purpose of an intercreditor agreement
  • Why have an intercreditor agreement?
  • What is the difference between a deed of priority, a subordination agreement and an intercreditor agreement?
  • When is an intercreditor agreement needed?
  • Drafting and negotiating intercreditor agreements
  • LMA standard form intercreditor agreements and other precedents
  • Negotiating intercreditor terms
  • Key parties to an intercreditor agreement
  • Secured creditors
  • More...

Intercreditor agreement—key provisions

This Practice Note provides an introduction to intercreditor agreements and their key provisions. This Practice Note:

  1. explains the purpose of having an intercreditor agreement and when an intercreditor agreement would be used instead of a deed of priority or subordination deed

  2. provides links to helpful information on how to draft and negotiate an intercreditor agreement

  3. sets out the key parties to an intercreditor agreement

  4. provides an explanation of the key provisions found in an intercreditor agreement, including:

    1. ranking and subordination

    2. restrictions on payments to junior creditors

    3. amendments to transaction documents

    4. restrictions on taking enforcement action

    5. control of security enforcement strategy, and

    6. release of claims on disposals

Different types of transactions have different typical structures and types of debt and there are also significant variations within each type of transaction as well. This Practice Note discusses provisions that are commonly seen in most intercreditor agreements.

Purpose of an intercreditor agreement

Why have an intercreditor agreement?

The key purpose of the intercreditor agreement is to ensure that each type of debt used in the transaction has a risk commensurate with its pricing, ie senior debt (which has a lower return) has less risk than the more expensive junior debt. Central to this is ensuring that senior debt ranks ahead of junior debt in terms of right and priority of payment.

The intercreditor agreement will also deal in

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