Intercreditor Agreements Explainer
An intercreditor agreement sets the rights and priorities of different creditor groups that lend to the same borrower or claim the same collateral. It can govern first-lien and second-lien lenders, senior and subordinated debt, asset-based and term lenders, or creditors at different levels of a corporate structure.
The agreement addresses payment priority, lien ranking, enforcement control, standstill periods, turnover of mistaken payments, collateral releases, bankruptcy voting, debtor-in-possession financing, adequate protection, amendments, and purchase options. These rules become most important when the borrower is distressed and cooperation is hardest.
Clear rules reduce uncertainty and can make a layered financing possible. Senior lenders receive control consistent with their priority, while junior creditors preserve negotiated rights and potential recovery. The borrower benefits when creditor disputes are resolved in advance rather than during a crisis.
Priority labels do not answer every question. Collateral gaps, separate guarantees, different obligors, cap amounts, future advances, and bankruptcy law can alter outcomes. Each creditor should analyze the actual collateral and entity structure, not just the intercreditor summary, and model what happens under enforcement and reorganization scenarios.
The agreement allocates priority, control, and remedies before distress.
Shared collateral makes these rules essential.
Senior lenders may control remedies while junior lenders wait.
Standstills and purchase rights balance interests.
Different obligors or asset pools can change recovery.
Priority labels alone are incomplete.
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