Intercompany Indemnity, Subrogation and Contribution Agreement

Summary

This template is a standalone intercompany indemnity, subrogation, and contribution agreement entered into in connection with a syndicated loan transaction where subsidiaries of the borrower have jointly and severally guaranteed the borrower’s obligations under the credit facility. This template includes practical guidance and drafting notes. A contribution agreement among the guarantors is an agreement in which each guarantor agrees to an apportionment of liability among themselves. In the absence of an agreement to the contrary, a guarantor is generally entitled to contribution from co-guarantors of the same principal obligation, with each co-guarantor liable for its’ pro rata share of the total liability (note that the share of a co-guarantor that has been adjudicated insolvent is typically disregarded for purposes of determining each co-guarantor’s proportionate share). Oftentimes the provisions contained in this standalone agreement are included in the guarantee agreement itself. The two main operative provisions of the intercompany indemnity, subrogation and contribution agreement are covered in Sections 1.1. and 1.2.. If the lenders successfully enforce the guaranty against a guarantor, the guarantor under common law will usually be afforded a right of subrogation against the borrower. Section 1.1. covers the guarantors’ right to be indemnified by the borrower and their right of subrogation. Subrogation means that a guarantor “stands in the shoes” of the lenders to assert the lender’s rights against the borrower under the loan documents. Section 1.2. covers contribution and subrogation. Under the principles of contribution, if one guarantor pays more than its proportionate share of the borrower’s debt, that guarantor is entitled to have the co-guarantors repay to such guarantor their contributive share of the debt paid. The amount of each co-guarantor’s contributive share is measured by the amount of the outstanding debt, not the original amount of the debt. Such contributive share may be based on each co-guarantor’s pro-rata share of the total liability, but the parties may also contractually agree to a non-pro rata allocation of the liability and contribution rights amongst them (for example, based on the net worth of each co-guarantor as provided in Section 1.2. of this sample form. Section 1.2. also provides that the co-guarantors will be subrogated to the rights of the paying guarantor under Section 1.1. to the extent of such payment. For a full listing of key content covering formation, types, and enforceability of guaranties, see Guaranties Resource Kit. For more information, see Joint, Several, and Joint and Several Liability in Loan Documents. For more information on guarantors’ rights generally, see 1-11 Asset Based Financing: A Transactional Guide § 11.10 (2015).