But in the event of a senior/junior lender case, the lenders enter into an inter-creditor agreement. Such an agreement helps them define their respective rights. Different types of transactions have different typical structures and types of debt, and there are also significant differences within each type of transaction. This practice note explains the provisions that most inter-secretary agreements often find. Junior lenders should be careful when evaluating an intercredit file before participating. One way to achieve this goal is to negotiate a fair edge and develop achievable plans. However, if efforts to set such conditions are unsuccessful, it is advisable that the junior lender waive the agreement or seek other options. Contains links to useful information on the development and negotiation of an inter-secretary agreement The Intercreditor contract plays a central role in the right to pledge. It is therefore essential that both lenders establish a solid foundation for their rights and priorities in the event of a borrower`s financial capacity failure and late payment. In the absence of such a document, each party can make its own decisions and be inconsistent.
The whole trial can be unethical and uneconomic and can quickly turn into a legal disorder in court. However, in some cases, there are more than two lenders. Or even more than two high-level lenders. In this case, the leading lenders sign a separate agreement defining each other`s authorities. Typically, there are two creditors in an inter-creditor agreement – one senior and the other a secondary or junior lender. Company A, for example, receives a loan from Bank A for a large project. Subsequently, Company A also receives a relatively modest loan from Bank B for further development of the same project. In this case, Bank A is the senior lender and Bank B is the junior lender. In many inter-credit agreements, it is often common for the chief lender to dictate the terms of the pledge. However, in cases where a junior lender is not trading hard, the senior lender may disadvantage a junior lender. In some cases, a junior lender may face artificial delays on the part of the primary lender to seek authorization to enter into an agreement or right. Such an approach can thwart the process and force the junior lender to capitulate.