Understanding Intercreditor Agreements

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. provides an explanation of the main provisions of an interbank agreement, including the priority of the deposit between two secured creditors if both have security interests on the same guarantees. The reason is that the primary lender will strive to be repaid first on the collateral income when the pledge is applied, while the junior lender expects to recover only the remaining income. If the proceeds of the guarantee are not sufficient to fully repay the priority lender, both secured creditors and all other unsecured creditors would equally rank in their right to repay the remaining debts of the debtor`s other assets. The terms of payment contained in the interbank agreement mitigate this result in favour of the priority creditor. The payment sub-settlement allows the principal creditor to first deduct all assets of the debtor or another debtor, be they security. The amount owed to the principal lender gives rise to subordinated terms of payment, not the value of the mortgaged collateral. As a general rule, the provisions of the interbank agreement require all parties to pay all proceeds of the common guarantee to the priority creditor or his representative. Another fundamental principle of intercreditator agreements is that the principal creditor is generally entitled to control the maintenance and transfer of common security, while the subordinate creditor is required to waive certain legal rights that would otherwise give the subordinate creditor the right to challenge the enforcement and enforceable execution procedure. As a general rule, a “status quo period” is imposed, which gives the priority creditor the exclusive right to apply and exercise remedial action through the debtor for a specified period of time.

The number of status quo periods allowed during the term of the loan is generally negotiated between priority creditors and younger creditors. Each status quo period is generally 90 to 180 days during the term of the loan, with additional time extensions, provided enforcement measures are carefully applied. In order to speed up and streamline the realization of security, the granting of exclusivity to the priority creditor may be subject to specific conditions, such as the obligation. B for the creditor to choose the services of a qualified independent appraiser to evaluate collateral or an experienced investment banker to conduct an auction procedure for the efficient sale of security. The same conditions may apply to the post-I business creditor if he resumes the process after the expiry of the status quo period for non-implemented common guarantees. As a general rule, the second holder of the pledge rights reserves the right to assert a right and to demand and expedite his credits in order to obtain his status (or at least not worse than) all unsecured applicants. The question of whether the second pawnbroker will have the right to approve Densatous in the bankruptcy proceedings is generally the subject of intense negotiations.