Intercreditor agreements—effective releases

The following Restructuring & Insolvency practice note provides comprehensive and up to date legal information covering:

  • Intercreditor agreements—effective releases
  • Background
  • Case studies and case law
  • LMA standard release clause
  • Future drafting of intercreditor agreements
  • Senior/high yield intercreditor agreements

Intercreditor agreements—effective releases


The aim of the intercreditor agreement is to try and deal with potential conflicts which will inevitably arise between the different classes of secured lender on an restructuring.

The intercreditor agreement will cover various issues (see Practice Note: Intercreditor agreements for R&I lawyers), of which one of the most important is the security trustee's ability to grant releases to enable assets to be sold 'free and clear' from any junior liabilities on the instructions of the majority senior lenders (generally 66⅔ % in connection with enforcement of the security).

Many restructurings involve the enforcement of share pledge collateral where shares in the holding company (Holdco) are sold to a new company (Newco) controlled by senior creditors who are 'in the money' or to a third party purchaser (see Practice Notes: Where the value breaks and negotiating strength and Transfer to Newco). In order to do this, Holdco and the group need to be released from all claims which are 'out of the money' (generally junior claims), guarantees and security. This allows a clean break from the old structure and a transfer unburdened by old liabilities.

The intercreditor agreement may permit the security trustee to release some or all of the following:

  1. guarantees

  2. security

  3. principal debt claims

It is often important to consider the tax position as releasing a borrower from a debt claim may create taxable

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