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Intercreditor Agreements

Ince Gordon Dadds works for Senior Lenders, Mezzanine Lenders and the borrower and has experience advising on intercreditor agreements in all transaction sizes. For the lawyers involved in the transaction, it is much easier (time and ultimately cost) that the parties have already agreed on the commercial terms of the intercreditor agreements before the full convocation of the lawyers and that these are defined in clear and agreed principles, which can be used by the lawyers both for the elaboration and verification of the intercreditor agreement. The intention of this article is to provide a simple and non-exhaustive list of some of the key issues that parties should consider at this early stage. The most recent decision in In re MPM Silicones, LLC, Case No. 14-22503 (RDD) (Bankr. S.D.N.Y. Sept. 30, 2014) (Momentive) reflects the emerging tendency of courts to narrowly interpret the restrictions imposed on creditors creditors in these intercreditor agreements, with the restrictions co-existing with the distribution of the value of common guarantees. At Momentive, the bankruptcy court said the general reservation of rights as an uninsured creditor served to “enhance commitments made elsewhere in the agreement.” A junior lender should request a waiver for a certain class of collateral that a priority lender has not included in its asset base. As soon as it has been agreed that there is a personal guarantee from the borrower`s originate or a guarantee in favour of the junior lender, the junior lender should ensure that the established rights are properly reflected in the interconnection agreement and that they are not tied up. Another fundamental principle of intercreditor agreements is that the priority creditor generally has the right to control the maintenance and assignment of joint security rights, while the imitated creditor must waive certain legal rights that would otherwise allow the imitated creditor to challenge the enforcement and seizure proceedings. As a general rule, a “standstill period” is imposed, which limits the priority creditor`s exclusive right to impose and exercise remedies against the debtor for a specified period of time. The number of standstill periods allowed during the term of the loan is usually the subject of negotiations between priority creditors and younger creditors.

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