Intercreditor Agreements
“Priority isn’t personal — it’s contractual.”
Intercreditor Agreements – Making Multi-Lender Deals Work
An Intercreditor Agreement is a legal contract between two or more lenders that outlines their respective rights and priorities when they’re lending to the same borrower — especially important when debt is layered (e.g., senior + mezzanine or ABL + term loan).
When a borrower has multiple creditors, things get messy fast if there’s no formal agreement.
Intercreditor agreements prevent disputes by clearly defining:
Who gets paid first
Who can take enforcement action
When and how junior lenders can intervene
How collateral is shared (or not shared)
Rights during bankruptcy or liquidation
Intercreditor Agreements are used in:
- Senior + mezzanine financing
- ABL (Asset-Based Lending) + term loan structures
- Seller financing alongside bank debt
- Real estate projects with construction + perm lenders
- Venture debt combined with institutional capital
⚖️ Key Provisions
| Clause | What It Controls |
|---|---|
| Payment Priority | Senior lender gets paid first from shared collateral |
| Lien Subordination | Junior lender’s claim ranks below senior in liquidation |
| Standstill Period | Junior lender must wait (e.g., 90–180 days) before acting |
| Remedy Standstill | Junior lender may not foreclose or accelerate without approval |
| Turnover Clause | Junior must turn over proceeds that should have gone to senior |
| Collateral Carve-Outs | Specific assets reserved for junior lender or shared access |
| Bankruptcy Voting Rights | Who controls decision-making in insolvency scenarios |
| Buyout Rights | Junior may have option to buy out senior (or vice versa) in default |
Example
A business secures $5M in senior debt from a bank and $1.5M in mezzanine financing.
The intercreditor agreement ensures the mezz lender cannot collect or enforce remedies if the borrower defaults — until the senior lender is repaid or a standstill period ends.
If the borrower sells an asset, proceeds go first to the senior lender per the payment priority clause.
What Borrowers Should Know
You’re often not at the negotiating table, but you’re bound by the outcome.
These agreements can delay enforcement, limit refinancing flexibility, or restrict new debt.
A lender refusing to sign can blow up a deal — timing matters.
Always review these with legal counsel — even if you’re not a party, your capital structure is affected.