Intercreditor agreements are legal documents that govern the rights and obligations of various lenders who have extended credit to a borrower. In essence, an intercreditor agreement outlines the relationship between the different lenders, including how the proceeds of a loan will be divided among them, and how disputes will be resolved. Whether you are an attorney drafting an intercreditor agreement, or a lender seeking to understand the format and content of such agreements, here is what you need to know.
Format of an Intercreditor Agreement
The format of an intercreditor agreement can vary depending on the specific terms and conditions, and the parties involved. However, certain elements are typically included in such agreements. These include the following:
1. Parties: The agreement should clearly list the parties involved, including the borrower and all the lenders who have extended credit to the borrower.
2. Term: The agreement should specify the term of the loan, including any extensions or renewals.
3. Priority of Payment: The agreement should outline the priority of payment among the lenders. This means that it should specify who gets paid first and how much they will receive.
4. Collateral: The agreement should also spell out the collateral that has been pledged to secure the loan. This could include assets such as property, equipment, or inventory.
5. Voting Rights: The agreement should specify the voting rights of the lenders with respect to the borrower`s affairs. This could include the right to vote on matters such as bankruptcy, restructuring, or liquidation.
6. Representations and Warranties: The agreement should include warranties and representations made by the borrower. These could include statements about the borrower`s financial condition, business operations, and any other material facts relevant to the loan.
7. Default and Remedies: The agreement should contain provisions outlining the consequences of default, including the remedies available to the lenders. These could include the right to accelerate the loan, take possession of collateral, or appoint a receiver.
8. Dispute Resolution: The agreement should also specify the method of dispute resolution in case of any conflict between parties. This could include mediation, arbitration, or litigation.
In conclusion, the format of an intercreditor agreement is fairly standard and includes key provisions such as parties, term, priority of payment, collateral, voting rights, representations and warranties, default and remedies, and dispute resolution. As a professional, it is important to ensure that the final document is clear, precise, and easily understandable to all parties involved.