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. An intercreditor agreement (or inter-creditor agreement) is a contract between two other creditors. Such an agreement comes into effect when the borrower has two (or more) lenders. Lenders sign a contract between them specifying all the necessary points. The contract contains details such as dispute settlement, different deposit positions, creditors` responsibilities, each creditor`s debts, impact on other creditors, etc. These agreements give the bank a direct contractual claim against the subordinated creditor, which is not a mere prohibition in the facility agreement between the bank and the borrowers. However, it is important to balance these benefits with the cost of negotiations with the subordinate creditor.
A comprehensive inter-investment agreement involving several of the company`s creditors may not always be the most commercial approach and inter-creditor issues should be considered on a case-by-case basis. In many inter-credit agreements, it is often common for the chief lender to dictate the terms of the pledge. 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. A mezzanine lender generally needs the right to finance its position under a pension obligation or a single return. The agreement of the priority lender is not necessary for such an agreement as long as the third-party lender is a QIL and is not related to the borrower. High-level lenders are systematically committed to providing these third parties with specific housing, including the announcement of a late payment by the mezzanine lender as part of the Intercreditor agreement and a possibility of healing. Use an fa if you are one of several lenders for a real estate project. You want z.B a good thing if you are a major lender looking for the rank of repayments from other lenders. Alternatively, a junior lender wants a fine to confirm its rights as collateral if the borrower becomes insolvent.
Transfer restrictions: Senior and junior creditors must be able to transfer or transfer their rights and obligations under the Intercreditor agreement to a beneficiary or purchaser of priority or younger debt. As in the case of the Priority Debt Agreement against the Junior Intercrediteur, the same provisions should apply to the institutional investor, but only if an acquirer or assignee accepts the intercreator contract as an institutional investor/subordinate creditor. 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. The ideal scenario for a bank is that it can impose without reservation, while other creditors cannot take enforcement action without your consent. This gives the Bank significant control over the method and date of enforcement actions.