Background

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