Intercreditor Agreement Use

Before the agreement is signed, the junior lender must also specify the definition of “senior debt” and “junior retirement.” In addition, it is customary for a lead lender to process the terms of the agreement without the agreement of the junior lender. This is what the junior lender should keep in mind. As a general rule, each party should be informed of the critical elements of the agreement for each act signed by two or more parties. It is therefore necessary for a junior lender to reach a clear ground before the start of the transaction and identify fundamental questions: the junior lender should consider including in the contract the contractual terms of the resumption of the project if the borrower is in late payment. In the event of such a situation, the junior lender should be aware that there are usually only two options: either to inject funds into the project, to remedy financial defaults under the senior lender, or to pay the priority lender. This last point is often almost impossible in cases where the priority lender has provided very large financing. Typically, there are two creditors in an inter-creditor agreement – one senior and the other a secondary or junior lender. Company A, for example, receives a loan from Bank A for a large project. Subsequently, Company A also receives a relatively modest loan from Bank B for further development of the same project. In this case, Bank A is the senior lender and Bank B is the junior lender. defines the main parties to an inter-creditor agreement, but in the case of a priority/junior lender, lenders enter into an inter-creditor agreement. Such an agreement helps them define their respective rights. Such an agreement also includes the provisions on buyback rights.

This right allows a lender to purchase the receivables and pledge rights of other lenders. Such an option triggers bankruptcy proceedings following certain events, such as filing a bankruptcy proceeding.B. In addition, the primary lender may deliberately delay approval of the agreement, which may be up to the junior lender. This could prove frustrating for the junior lender. If you do not enter into such an agreement, each lender will act in its own way. Such a process could prove unprofitable and, at the same time, become a legal confusion. In such a scenario, the government authority may act as a junior lender, the financial (s) as a priority lender and the company (Y) as a borrower. Since the company provides credit to the two financiers with the same property, the senior creditor will in any event want to enter into an intercreditor agreement with the government authority in order to protect its interests. Junior lenders should be careful when evaluating an intercredit file before participating. One way to achieve this goal is to negotiate a fair edge and develop achievable plans. However, if efforts to set such conditions are unsuccessful, it is advisable that the junior lender waive the agreement or seek other options. Typically, a primary lender dictates the duration of the agreement.

Therefore, if the junior lender does not negotiate properly, this may be at a disadvantage. contains links to useful information on the design and negotiation of an inter-secretary agreement The agreement could also contain restrictions on reimbursement. A junior lender may agree that it would not require repayment before the full repayment of the priority debt, with the exception of interest or other payments, as agreed. provides an explanation of the main provisions that are found in an intercreator agreement, including: It is often the norm in many intercreditator agreements to see that the senior lender dictates the terms of the pledge right. However, in cases where a junior lender is not trading hard, the senior lender may disadvantage a junior lender. In some cases, a junior lender may face artificial delays on the part of the primary lender to seek authorization to enter into an agreement or right. Such an approach can thwart the process and force the junior lender to capitulate.