Intercreditor Agreement

Summary

This template is an intercreditor agreement (also called a subordination agreement) and is used to define the relationship between two different creditors of a company. While the nature of the creditors' relationships with the company may vary, this template contemplates both creditors making secured loans to the company. This template includes practical guidance, drafting notes, and optional clauses. Depending on the circumstances, the terms of the intercreditor agreement can vary considerably. For example, if the subordinated lender is a principal of the company, or a selling shareholder, the terms of subordination may be very deep and prevent the subordinated lender from taking any action under any circumstances. If, on the other hand, the subordinated lender is a mezzanine lender, the terms of subordination will be much more heavily negotiated and may allow the subordinated lender to act in various circumstances. The senior lender wants to have maximum flexibility to take action under its loan documents at any time, and not to have to get permission from the subordinated lender or otherwise be restricted by the intercreditor agreement. The subordinated lender will want to be able to force some action by the senior lender to realize on its debt before the senior creditor has exhausted the value of the collateral. See First Lien Debt and Intercreditor Arrangements and First Lien Debt Cap. For a full listing of key content that provides an overview of the creation, perfection, and priority of security interests under the Uniform Commercial Code (UCC), see Security Interests 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. For more information on senior/subordinated (or first lien/second lien) intercreditor agreements, see Intercreditor Agreements Resource Kit — First Lien/Second Lien Intercreditor Agreements.