Senior/mezzanine creditor intercreditor issues—introduction
Produced in partnership with Hogan Lovells International LLP

The following Banking & Finance practice note produced in partnership with Hogan Lovells International LLP provides comprehensive and up to date legal information covering:

  • Senior/mezzanine creditor intercreditor issues—introduction
  • The mezzanine facility agreement
  • Subordinating the mezzanine debt
  • Contractual subordination
  • Structural subordination
  • The intercreditor agreement
  • Senior/mezzanine issues
  • The LMA intercreditor agreement
  • Senior discharge date

Senior/mezzanine creditor intercreditor issues—introduction

Leveraged finance transactions are often funded from a number of different sources. Equity and senior debt are typically used, and in circumstances where an additional source of funds is required, mezzanine or another form of junior debt (such as second lien, payment in kind (PIK) or high yield notes) can be used.

Mezzanine debt is so called because it ranks after senior debt but ahead of equity.

See Practice Notes: Structure of a buy-out and Sources of finance for more information about common structures and the different types of funding typically used. Practice Note: Acquisition finance—introductory guide provides an introductory guide to acquisition finance while the Glossary of acquisition finance terms and jargon explains some commonly used terms.

This note provides introductory information on:

  1. the mezzanine facility agreement

  2. how mezzanine debt can be subordinated to senior debt, and

  3. key intercreditor agreement issues for senior and mezzanine lenders

More detailed information on the key intercreditor issues highlighted in this Practice Note can be found in Practice Notes: Senior/mezzanine creditor intercreditor issues—document amendments and payment controls and Senior/mezzanine creditor intercreditor issues—enforcement.

For a straightforward intercreditor agreement with accompanying drafting notes, see Precedent: Intercreditor deed—single company borrower—single secured senior lender—single secured junior lender—single unsecured subordinated lender.

Practice Note: Intercreditor rights comparison table—junior debt instruments provides a table setting out commonly negotiated positions for junior lenders on a leveraged finance transaction

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