Intercreditor agreement

An intercreditor agreement is a contract among two or more creditors in the same financing that governs ranking of claims, sharing of security proceeds, payment priorities, and restrictions on individual enforcement. EBRD defines it as the arrangement covering designation of ranks for creditors or creditor classes against borrower assets or enforcement proceeds, and restrictions on individual creditor action. In project finance and commercial real estate, it coordinates senior, mezzanine, hedging and other secured parties behind a shared security package.

Intercreditor agreement use on bank PF and CRE desks

Desks use the intercreditor agreement whenever more than one creditor class, or parallel facilities, sit on the same borrower group. The Loan Market Association publishes recommended forms for leveraged finance and for real estate finance senior and mezzanine structures. LMA describes its REF intercreditor as governing the relationship between two creditor classes by ranking debt and entitlements to guarantee and security proceeds, and by contractually restricting behaviour, including when and by whom security may be enforced and when payments may be made to a given class.

JMLSG notes that where senior and mezzanine or junior facilities have distinct lender groups and separate facility documentation, the relationship among finance parties is usually governed by an intercreditor agreement. IRENA's Open Solar term sheet appoints a security agent under an intercreditor agreement to hold, administer and enforce security for all senior creditors, and to create a common security package.

Mechanics: ranking, waterfall and control

Core mechanics typically include:

• ranking of debt and security interests across senior, super-senior, mezzanine and hedging claims
• a payment and enforcement waterfall, with turnover obligations if a junior creditor receives amounts out of order
• standstill periods and voting thresholds for enforcement, amendments and releases
• appointment and protection of a security trustee or security agent
• information sharing among creditor classes

Structural subordination (junior debt at a holding company) and contractual subordination (junior debt restricted inside the intercreditor) are alternative methods reflected in LMA real estate forms. Pari passu ranking among senior lenders usually sits inside the same class, with the intercreditor regulating cross-class priority. A common terms agreement may set shared borrower undertakings while the intercreditor remains the creditor-to-creditor rulebook. Day-to-day notices often run through the facility agent, with enforcement instructions running through the security trustee under intercreditor voting.

Boundaries

An intercreditor agreement does not create the underlying debt or the security interests themselves. Those arise under facility and security documents. Local insolvency law may still affect the practical enforceability of contractual subordination and standstill, which is why EBRD surveys ask whether intercreditor arrangements are recognised and enforceable in each jurisdiction.