Comparing Intercreditor Agreements

In view of their respective deposit priorities, the chances of a second collateral holder of receiving common collateral may be significantly reduced if the amount of the obligations of the first collateral creditor increases. In order to avoid this „Cram Down”, younger creditors generally seek explicit limits on the types and amounts of priority liabilities that can be secured by the first pledge right on common collateral whose terms are heavily negotiated. A second creditor may attempt to exclude items such as the undecreated discount on the initial issue, the portion of interest due to the incremental late payment rate, and certain fees and expenses. In addition, the second secured creditor usually attempts to impose a dollar-defined cap on the total amount of initial deposit obligations. The coverage obligations that are part of the priority commitments can vary significantly and increase the ceiling set in dollars. In the case of cross-border transactions or security seizures in different countries, trade and currency fluctuations should be covered by the interconnection agreement. Incremental credit facilities, such as refinancing or increasing credit extensions (e.g. B accordion facilities, as well as priming loans and self-management loans (PIDs) in the context of bankruptcy, may also be subject to the overall ceiling. Similarly, interest and different costs, expenses, allowances and other expenses may be subject to a different ceiling or may be placed in the same basket. One way to give the priority creditor sufficient flexibility to grant additional loans to a debtor in case of need is to allow such additional obligations, amounting to approximately 10 to 15 per cent of the initial nominal amount of the priority debt, with perhaps a second additional buffer once bankruptcy proceedings have commenced and a DIP loan is extended by the priority creditor.

The ceiling on the nominal value of priority liabilities should be automatically and irrevocably lowered when the capital is repaid to the priority creditor under its facilities. The LMA Leveraged Intercreditor Agreement was the first of the LMA intercreditors agreements to be published and is suitable for adaptation to different types of transactions. Prior to the publication of the LMA REF intercreditor agreement, it was often suitable for use in real estate financing transactions. Note that the LMA has issued two additional intercreditor agreements for transactions in high-yield bonds and another inter-credit agreement for transactions with a super senior revolving facility and a senior term facility structure. In addition to the release provisions, European intercreditors with a second right of pledge generally allow the securities agent (subject to the fair sale provisions discussed above) to transfer subordinated pledge rights, intra-group liabilities and/or shareholder loans to buyers of assets in an executing position. The option of assigning liabilities could be more effective than the elimination of execution-related subordinated debt. As a general rule, U.S. intercreditors with a second deposit right do not subordinate junior deposit obligations to the obligations of the first. The implementation of non-subordinable provisions in the United States. . . .


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