Intercreditor payment priorities and requisite majorities

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

  • Intercreditor payment priorities and requisite majorities
  • Background
  • Waterfall of payments
  • Flip clauses
  • Requisite majorities
  • Special Servicer
  • Reasonable consent

Intercreditor payment priorities and requisite majorities


The aim of the intercreditor agreement (also known as a deed of priority) is to try and deal with potential conflicts which will inevitably arise between the different classes of secured lender on a restructuring.

Waterfall of payments

The intercreditor agreement usually sets out a payment waterfall directing the security trustee how to apply any money received by it (whether sale proceeds, proceeds of litigation or payments from a debtor wrongly paid to a junior creditor and handed over under turnover provisions) either (i) in all circumstances or (ii) during normal operations (pre-enforcement) and post enforcement ie a 'flip' clause (see below). The payment waterfall will generally provide for the security trustee's fees to be paid out first, and then money paid to creditors according to their ranking (usually secured lenders appearing at the top of the list) with any surplus being returned to the debtors. A typical payment waterfall may require the security trustee to apply monies received towards:

  1. first—sums owing to the security trustee

  2. second—enforcement costs and expenses incurred by any senior lender, hedge counterparty or mezzanine lender in connection with the senior facilities, hedging liabilities or mezzanine facility

  3. third—senior facilities and the hedging liabilities pro rata between themselves

  4. fourth—mezzanine facility

  5. fifth—to any person to whom payment is required to be made by law, and

  6. sixth—to the debtors


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