Amendments to Loan Documents Clause
(Split Collateral Intercreditor Agreement)

Summary

This amendments to loan documents clause is used in a standard intercreditor agreement in connection with secured loan facilities featuring a split collateral structure. This clause contains practical guidance, drafting notes, and optional clauses. A split collateral structure is one wherein a borrower (and often other obligors) grants a first lien to one collateral agent on some categories of assets to secure the debt owed to a group of lenders and a first lien to another collateral agent on other categories of assets to secure the debt owing to another group of lenders. If the two debt facilities are both secured, the collateral agents will enter into an intercreditor agreement to govern their relative rights in any shared collateral (referred to as lien subordination). This clause refers to an "ABL Collateral Agent" and a "Term Loan Collateral Agent" and to the "ABL Obligations" and "Term Loan Obligations" as the sample facilities that are splitting collateral. However, it is common for split collateral arrangements to involve issuances of notes or other debt securities, in which case references to the collateral agent for a syndicate of lenders or obligations under a credit facility should be changed to refer to the appropriate parties under the relevant governing debt documents (e.g., a trustee for a group of noteholders or obligations under an indenture). These provisions begin with the general principle that the asset based facility loan documents and the term loan documents may be amended, refinanced, etc., without affecting the lien priorities and other provisions of the split collateral intercreditor agreement. The parties also agree that their respective loan documents may not be amended in certain respects without the consent of the agent for the other class of lenders. It should be noted, however, that since the asset based credit agreement will also include restrictions on amendments to the term loan documents, and vice versa, the parties sometimes choose to deal with such restrictions, to a greater or lesser extent, in their respective credit agreements, rather than in the intercreditor agreement – although taking this approach means there will be no privity as to such matters between the two classes of lenders. Sections [] and [] set forth (A) the general principle that the asset based facility loan documents and the term loan documents, respectively, may be amended without affecting the lien priorities or other terms of the intercreditor agreement, and (B) in the proviso to each section, restrictions on effecting certain amendments without the consent of the collateral agent for the other class of lenders. The extent of these restrictions is typically negotiated and varies across transactions – those set forth in the provisos to Sections [] and [] are among the more common restrictions. Note that these intercreditor agreement clauses contemplate a financing that includes the following elements: • Collateral and guarantee support from the borrower and other loan parties, generally including a group of the borrower's subsidiaries and the borrower's immediate parent entity (Holdings). Holdings, the borrower, and these subsidiaries are typically referred to collectively as "grantors," since they have granted liens on their assets to secure the credit facilities. • The collateral securing the asset based facility debt and the term loan debt comprises the same assets of the grantors, although the asset based facility lenders have a first priority lien with respect to a certain subset of assets and the term loan lenders have a first priority lien with respect to a different subset of assets. The asset based facility lenders have a second priority lien with respect to the assets on which the term loan lenders have a first priority lien; and, conversely, the term loan lenders have a second priority lien with respect to the assets on which the asset based facility lenders have a first priority lien. While it is often the case in split collateral structures that both lender groups benefit from security interests in substantially all the assets of the grantors, there are also situations in which the parties negotiate otherwise. • A single collateral agent is the holder of the first lien on the subset of collateral for the benefit of a syndicate of asset based facility lenders, and a separate single collateral agent is the holder of the first lien on the subset of collateral for the benefit of a syndicate of term loan lenders. It is the liens of the agents, and the rights of the agents and the other parties as creditors secured by those liens, that are subject to the priorities and other provisions of the split collateral intercreditor agreement. • Optional definitions, language, and clauses are included in these clauses if the parties have agreed to an asset based facility first lien cap amount (i.e., a cap on the amount of the asset based facility debt treated as senior to the term loan debt with respect to the asset based priority collateral). Lien caps are less common in split collateral intercreditor agreements than in first lien/second lien intercreditor agreements. Sometimes, however, in split collateral intercreditor agreements, the term loan lenders will negotiate a cap on the first lien of the asset based facility in the asset based priority collateral, as provided in the optional definitions, language, and clauses. A cap on the first lien of the term loan lenders in the term loan priority collateral in a split collateral structure is uncommon and would require additional definitions, language, and clauses. • Intercreditor Agreements • Lien Subordination vs. Debt Subordination • Split Collateral Matters: Defining "Priority Collateral" • Split Collateral Matters: Access and Use Rights • First Lien Debt and Intercreditor Arrangements • First Lien Debt Cap • "Waterfall": Priority of Application of Proceeds • Remedies Block: Standstill • Turnover Provisions • Second Lien Lender Buyout Option • Release of Second Lien on Sale of Collateral • Amendments and Waivers to First Lien Documents and Second Lien Documents • 363 Sales and Adequate Protection • Consent to DIP Financing and Use of Cash Collateral For a full listing of key content covering intercreditor agreeements, see Intercreditor Agreements Resource Kit. For a full listing of key content covering amendments, consents, and other modifications for loan documents, see Amendments, Consents, and Waivers Resource Kit. For a full listing of key content covering asset-based lending, including agreements, security, guaranties, perfection, and priorities, see Asset-Based Lending Resource Kit.