Split Collateral Matters: Defining "Priority Collateral"

Summary

This practice note discusses a split collateral structure in intercreditor agreements. In the split collateral structure (or bifurcated structure), the security interest of one lender in certain categories of assets of the common loan parties will have priority over the security interest of the other lender, while the security interest of such other lender in other categories of assets will have priority over the security interests of the one lender. Thus, each lender has a priority lien as to a different categories of assets, most often with subordinate liens behind the other lender on the categories of assets in which the other lender has a first priority lien (that is, "wrap around seconds" or "wrapping seconds").