What Is The Purpose Of An Intercreditor Agreement

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. To overcome these problems, it is important that the junior lender carefully evaluates the act before accepting it. In addition, the junior lender must negotiate the agreement fairly. If the efforts have not been profitable, the junior lender cannot accept the agreement and look for other options. The interbank agreement plays a central role in the right to pledge. It is therefore essential that both lenders establish a solid foundation for their rights and priorities in the event of a borrower`s financial capacity failure and late payment. In the absence of such a document, each party can make its own decisions and be inconsistent.

The whole trial can be unethical and uneconomic and can quickly turn into a legal disorder in court. Such an agreement plays a decisive role in the right to collateral. Therefore, the agreement is important to all lenders, as it is the basis of rights and priorities if the borrower is not able to pay properly or be insolvent. A senior lender generally wants a junior lender to bear the burden of debts incurred by the borrower. In this case, a junior lender can protect itself by requesting waivers for short-term and limited loans. It should also negotiate an adoption for the exercise of fundamental capital rights, such as holding a shareholder vote in the event of a deadlock.B. When structuring complex loan financing, financiers must consider whether to replace unsecured and structurally subordinated „mezzanine“ debts in the capital hierarchy with a second secured mortgage. The relatively lower cost of financing dual-bond credit is based on the assumption that the second pawn bonds could obtain some capital value on the remaining guarantees that would otherwise not be available with such „mezzanine“ debts.